· u.s. airline industry deregulation lowered barriers for new airlines. in this period, new...

Current Issues in the Aviation Industry

Topic Objective:

At the end of this topic student will be able understand:

The First Airlines

U.S. Airline Industry

Development since 1945

European Airline Industry

Deregulation

Latin American Airline Industry

Asian Airline Industry

Definition/Overview:

An airline provides air transport services for passengers or freight, generally with a recognized

operating certificate or license. Airlines lease or own their aircraft with which to supply these

services and may form partnerships or alliances with other airlines for mutual benefit. Airlines

vary from those with a single airplane carrying mail or cargo, through full-service international

airlines operating many hundreds of airplanes. Airline services can be categorized as being

intercontinental, intercontinental, or domestic and may be operated as scheduled services or

charters.

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Key Points:

1. The First Airlines

DELAG, Deutsche Luftschiffahrts-Aktiengesellschaft (German: acronym for "German Airship

Transport Corporation") was the world's first airline. It was founded on November 16, 1909 with

government assistance, and operated airships manufactured by Zeppelin Corporation. Its

headquarters were in Frankfurt. (Note: Americans, such as Rufus Porter and Frederick Marriott,

attempted to start airlines in the mid-19th century, focusing on the New York-California route.

Those attempts foundered due to such mishaps as the aircraft catching fire and the aircraft being

ripped apart by spectators.) The five oldest non-dirigible airlines that still exist are Australia's

Qantas, Netherland's KLM, Colombia's Avianca, Czech Republic's Czech Airlines and Mexico's

Mexicana. KLM first flew in May 1920 while Qantas (for the Queensland and Northern

Territory Aerial Services Limited) was founded in Queensland, Australia in late 1920. Qantas

has operated ever since with a perfect safety record with no loss of lives.

2. U.S. Airline Industry

Tony Jannus conducted the United States' first scheduled commercial airline flight on 1 January

1914 for the Saint Petersburg-routes, Braniff Airways, American Airlines, Delta Air Lines,

United Airlines (originally a division of Boeing), Trans World Airlines, Northwest Airlines, and

Eastern Air Lines, to name a few.



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Passenger service during the early 1920s was sporadic: most airlines at the time were focused on

carrying bags of mail. In 1925, however, the Ford Motor Company bought out the Stout Aircraft

Company and began construction of the all-metal Ford Trimotor, which became the first

successful American airliner. With a 12-passenger capacity, the Trimotor made passenger

service potentially profitable. Air service was seen as a supplement to rail service in the

American transportation network.At the same time, Juan Trippe began a crusade to create an air

network that would link America to the world, and he achieved this goal through his airline, Pan

American World Airways, with a fleet of flying boats that linked Los Angeles to Shanghai and

Boston to London. Pan Am and Northwest Airways (which began flights to Canada in the 1920s)

were the only U.S. airlines to go international before the 1940s. With the introduction of the

Boeing 247 and Douglas DC-3 in the 1930s, the U.S. airline industry was generally profitable,

even during the Great Depression. This trend continued until the beginning of World War II.

3. Development since 1945

As governments met to set the standards and scope for an emergent civil air industry toward the

end of the war, it was no surprise that the U.S. took a position of maximum operating freedom.

After all, U.S. airline companies were not devastated by the war, as European companies and the

few Asian companies had been. This preference for "open skies" operating regimes continues,

within limitations, to this day. World War II, like World War I, brought new life to the airline

industry. Many airlines in the Allied countries were flush from lease contracts to the military,

and foresaw a future explosive demand for civil air transport, for both passengers and cargo.

They were eager to invest in the newly emerging flagships of air travel such as the Boeing

Stratocruiser, Lockheed Constellation, and Douglas DC-6. Most of these new aircraft were based

on American bombers such as the B-29, which had spearheaded research into new technologies

such as pressurization. Most offered increased efficiency from both added speed and greater

payload. In the 1950s, the De Havilland Comet, Boeing 707, Douglas DC-8, and Sud Aviation

Caravelle became the first flagships of the Jet Age in the West, while the Soviet Union bloc



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countered with the Tupolev Tu-104 and Tupolev Tu-124 in the fleets of state-owned carriers

such as Aeroflot and Interflug. The Vickers Viscount and Lockheed L-188 Electra inaugurated

turboprop transport.

The next big boost for the airlines would come in the 1970s, when the Boeing 747, McDonnell

Douglas DC-10, and Lockheed L-1011 inaugurated widebody ("jumbo jet") service, which is

still the standard in international travel. The Tupolev Tu-144 and its Western counterpart,

Concorde, made supersonic travel a reality. Concorde first flew in 1969 and operated through

2003. In 1972, Airbus began producing Europe's most commercially successful line of airliners

to date. The added efficiencies for these aircraft were often not in speed, but in passenger

capacity, payload, and range. Airbus also features modern electronic cockpits that were common

across their aircraft to enable pilots to fly multiple aircraft with minimal cross-training. 1978's

U.S. airline industry deregulation lowered barriers for new airlines. In this period, new start-ups

entered during downturns in the normal 8-10 year business cycle. At that time, they find aircraft,

are financed, contract hangar and maintenance services, train new employees, and recruit laid off

staff from other airlines. As the business cycle returned to normalcy, major airlines dominated

their routes through aggressive pricing and additional capacity offerings, often swamping new

startups. Only America West Airlines (which has since merged with US Airways) remained a

significant survivor from this new entrant era, as dozens, even hundreds, have gone under. In

many ways, the biggest winner in the deregulated environment was the air passenger. Indeed, the

U.S. witnessed an explosive growth in demand for air travel, as many millions who had never or

rarely flown before became regular fliers, even joining frequent flyer loyalty programs and

receiving free flights and other benefits from their flying. New services and higher frequencies

meant that business fliers could fly to another city, do business, and return the same day, for

almost any point in the country. Air travel's advantages put intercity bus lines under pressure,

and most have withered away. By the 1980s, almost half of the total flying in the world took

place in the U.S., and today the domestic industry operates over 10,000 daily departures

nationwide.



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Toward the end of the century, a new style of low cost airline emerged, offering a no-frills

product at a lower price. Southwest Airlines, JetBlue, AirTran Airways, Skybus Airlines and

other low-cost carriers began to represent a serious challenge to the so-called "legacy airlines", as

did their low-cost counterparts in Europe, Canada, and Asia. Their commercial viability

represented a serious competitive threat to the legacy carriers. However, of these, ATA and

Skybus have since ceased operations. Thus the last 50 years of the airline industry have varied

from reasonably profitable, to devastatingly depressed. As the first major market to deregulate

the industry in 1978, U.S. airlines have experienced more turbulence than almost any other

country or region. Today, almost every single legacy carrier except for American Airlines has

operated under Chapter 11 bankruptcy provisions or have gone out of business.

4. European Airline Industry

The first countries in Europe to embrace air transport were Finland, France, Germany, the

Netherlands and the United Kingdom. KLM, the oldest carrier still operating under its original

name, was founded in 1919. The first flight (operated on behalf of KLM by Aircraft Transport

and Travel) transported two English passengers to Schiphol, Amsterdam from London in 1920.

Like other major European airlines of the time (KLM's early growth depended heavily on the

needs to service links with far-flung colonial possessions (Dutch Indies). It is only after the loss

of the Dutch Empire that KLM found itself based at a small country with few potential

passengers, depending heavily on transfer traffic, and was one of the first to introduce the hub-

system to facilitate easy connections. France began an air mail service to Morocco in 1919 that

was bought out in 1927, renamed Aropostale, and injected with capital to become a major

international carrier. In 1933, Aropostale went bankrupt, was nationalized and merged with

several other airlines into what became Air France. In Finland, the charter establishing Aero O/Y

(now Finnair, one of the oldest still-operating airlines in the world) was signed in the city of

Helsinki on 12 September 1923. Junkers F 13 D-335 became the first aircraft of the company,



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when Aero took delivery of it on 14 March 1924. The first flight was between Helsinki and

Tallinn, capital of Estonia, and it took place on 20 March 1924, one week later.

Germany's Lufthansa began in 1926. Lufthansa, unlike most other airlines at the time, became a

major investor in airlines outside of Europe, providing capital to Varig and Avianca. German

airliners built by Junkers, Dornier, and Fokker were the most advanced in the world at the time.

The peak of German air travel came in the mid-1930s, when Nazi propaganda ministers

approved the start of commercial zeppelin service: the big airships were a symbol of industrial

might, but the fact that they used flammable hydrogen gas raised safety concerns that culminated

with the Hindenburg disaster of 1937. The reason they used hydrogen instead of the not-

flammable helium gas was a United States military embargo on helium. The British company

Aircraft Transport and Travel commenced a London to Paris service on 25 August 1919, this was

the world's first regular international flight. The United Kingdom's flag carrier during this period

was Imperial Airways, which became BOAC (British Overseas Airways Co.) in 1939. Imperial

Airways used huge Handley-Page biplanes for routes between London, the Middle East, and

India: images of Imperial aircraft in the middle of the Rub'al Khali, being maintained by

Bedouins, are among the most famous pictures from the heyday of the British Empire.

5. Deregulation

Deregulation of the European Union airspace in the early 1990s has had substantial effect on

structure of the industry there. The shift towards 'budget' airlines on shorter routes has been

significant. Airlines such as Easyjet and Ryanair have grown at the expense of the traditional

national airlines. There has also been a trend for these national airlines themselves to be

privatised such as has occurred for Aer Lingus (Ireland) and British Airways. Other national

airlines, including Italy's Alitalia, have suffered - particularly with the rapid increase of oil prices

in early 2008.



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6. Latin American Airline Industry

Along the first countries to have regular airlines in Latin America were Chile with LAN Chile

(today LAN Airlines), Colombia with Avianca, Mexico with Mexicana de Aviacin, Brazil with

Varig, and TACA as a bound of several airlines of Central American countries (Honduras, El

Salvador, Costa Rica, Guatemala and Nicaragua). All the previous airlines started regular

operations before World War II. Aeromexico is also in service since 1934, but was initially

called Aeronaves de Mxico. The same situation happened with other regional airlines, such as

Aerolineas Argentinas. All of these airlines are still in service. The air travel market has evolved

rapidly over recent years in Latin America. Some industry estimations over 2000 new aircraft

will begin service over the next five years in this region. These airlines serve domestic flights

within their countries, as well as connections within Latin America and also overseas flights to

North America, Europe, Australia, Africa and Asia. Just one airline, LAN (Latin American

Networks) has international subsidiaries: Chile as the central operation along with Peru, Ecuador,

Argentina and some operations in the Dominican Republic. The main hubs in Latin America are

Sao Paulo in Brazil, Bogota in Colombia,Caracas in Venezuela, Lima in Peru, Mexico City in

Mexico, Buenos Aires in Argentina, and Santiago in Chile.

7. Asian Airline Industry

Some of the first countries in Asia to embrace air transport were India, Hong Kong, Indonesia,

Malaysia and the Philippines. One of the first countries in Asia to embrace air transport was the

Philippines. Philippine Airlines was founded on February 26, 1941, making it Asia's oldest

carrier and the oldest operating under its current name. The airline was started by a group of

businessmen led by Andres Soriano, hailed as one of the Philippines' leading industrialists at the

time. The airlines first flight was made on March 15, 1941 with a single Beech Model 18 NPC-

54 aircraft, which started its daily services between Manila (from Nielson Field) and Baguio,

later to expand with larger aircraft such as the DC-3 and Vickers Viscount. Notably Philippine



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Airlines leased Japan Airlines their first aircraft, a DC-3 named "Kinsei". On July 31, 1946, a

chartered Philippine Airlines DC-4 ferried 40 American servicemen to Oakland,California from

Nielson Airport in Makati City with stops in Guam, Wake Island, Johnston Atoll and Honolulu,

Hawaii, making PAL the first Asian airline to cross the Pacific Ocean. A regular service between

Manila and San Francisco was started in December. It was during this year that the airline was

designated as the Philippines flag carrier.

Another airline company to begin early operations was Air India, which had its beginning as

Tata Airlines in 1932, a division of Tata Sons Ltd. (now Tata Group) by India's leading

industrialist JRD Tata. On October 15, 1932, J. R. D. Tata himself flew a single engined De

Havilland Puss Moth carrying air mail (postal mail of Imperial Airways) from Karachi to

Bombay via Ahmedabad. The aircraft continued to Madras via Bellary piloted by Royal Air

Force pilot Nevill Vincent. With the outbreak of World War Two, the airline presence in Asia

came to a relative halt, with many new flag carriers donating their aircraft for military aid and

other uses. Following the end of World War II, regular commercial service was restored in India

and Tata Airlines became a public limited company on 29 July 1946 under the name Air India.

After the Independence of India, 49% of the airline was acquired by the Government of India. In

return, the airline was granted status to operate international services from India as the

designated flag carrier under the name Air India International. Neighbouring countries also soon

embraced air transport, notably with the beginning of a new nation, Pakistan began Orient

Airways Ltd (Pakistan International Airlines), Cathay Pacific founded in 1946, Singapore

Airlines and Malaysian Airlines in 1947 (as Malayan Airways), Garuda Indonesia in 1949, Japan

Airlines in 1951, and Korean Air in 1962.

Topic Objective:


American Airlines



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Overview

History

American Airlines before World War II

Postwar developments

Expansion in 1980s and 1990s

TWA merger, 9/11, into present

Destinations

National

International

Economic considerations

Ticket revenue

Operating costs

Assets and financing

Airline partnerships

Environmental impacts

Call signs

Airline personnel

Industry Trends


Air travel remains a large and growing industry. It facilitates economic growth, world trade,

international investment and tourism and is therefore central to the globalization taking place in

many other industries. In the past decade, air travel has grown by 7% per year. Travel for both

business and leisure purposes grew strongly worldwide. Scheduled airlines carried 1.5 billion

passengers last year. In the leisure market, the availability of large aircraft such as the Boeing

747 made it convenient and affordable for people to travel further to new and exotic destinations.

Governments in developing countries realized the benefits of tourism to their national economies

and spurred the development of resorts and infrastructure to lure tourists from the prosperous

countries in Western Europe and North America. As the economies of developing countries



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grow, their own citizens are already becoming the new international tourists of the future.

Business travel has also grown as companies become increasingly international in terms of their

investments, their supply and production chains and their customers. The rapid growth of world

trade in goods and services and international direct investment has also contributed to growth in

business travel. Worldwide, IATA, International Air Transport Association, forecasts

international air travel to grow by an average 6.6% a year to the end of the decade and over 5% a

year from 2000 to 2010. These rates are similar to those of the past ten years. In Europe and

North America, where the air travel market is already highly developed, slower growth of 4%-

6% is expected. The most dynamic growth is centered on the Asia/Pacific region, where fast-

growing trade and investment are coupled with rising domestic prosperity. Air travel for the

region has been rising by up to 9% a year and is forecast to continue to grow rapidly, although

the Asian financial crisis in 1997 and 1998 will put the brakes on growth for a year or two. In

terms of total passenger trips, however, the main air travel markets of the future will continue to

be in and between Europe, North America and Asia.

Key Points:

1. American Airlines

American Airlines, Inc. (AA) is a US-based airline, the world's largest in passenger miles

transported and passenger fleet size. It is second largest, behind FedEx Express, in aircraft

operated and second behind Air France-KLM in operating revenues. A subsidiary of the AMR

Corporation, the airline is headquartered in Fort Worth, Texas, adjacent to the Dallas-Fort Worth

International Airport. American operates scheduled flights throughout the United States, as well

as flights to Canada, Latin America, the Caribbean, Europe, Japan, China, and India. The

Chairman, President, and CEO of AA is Gerard Arpey. In 2005, the airline flew more than 138

billion revenue passenger miles (RPM). American Eagle Airlines is a regional service provider

for American Airlines which it uses to fly smaller aircraft, primarily regional jets.



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2. Overview

In May 2008, American served 260 cities (excluding codeshares with partner airlines) with 655

aircraft. American carries more passengers between the US and Latin America (12.1 million in

2004) than any other airline, and is also strong in the trans/inter/intracontinental market.

American has five hubs: Dallas/Fort Worth (DFW), Chicago (ORD), Miami (MIA), Luis Muoz

Marn International Airport in San Juan, PR (SJU) and Lambert St Louis International Airport

(STL). Dallas/Fort Worth is the airline's largest hub, with AA operating 85 percent of flights at

the airport and traveling to more destinations than from its other hubs. Los Angeles (LAX), New

York City-Kennedy (JFK), Boston (BOS), serve as focus cities and international gateways.

American operates maintenance bases at Tulsa (TUL), Kansas City (MCI), and Fort Worth

Alliance (AFW). American Eagle Airlines, a wholly owned subsidiary of AMR Corporation, is

headquartered in Fort Worth, Texas. American Eagle Airlines provides regional feed to

American Airlines throughout the United States, the Caribbean, Canada, and Mexico. American

Airlines is a founding member of the Oneworld airline alliance.

3. History

American Airlines was developed from a conglomeration of 82 small airlines through

acquisitions and reorganizations: initially, American Airways was a common brand by a

number of independent carriers. These included Southern Air Transport in Texas, Southern Air

Fast Express (SAFE) in the western US, Universal Aviation in the Midwest (which operated a

transcontinental air/rail route in 1929), Thompson Aeronautical Services (which operated a

Detroit-Cleveland route beginning in 1929) and Colonial Air Transport in the Northeast.

On January 25, 1930, American Airways was incorporated as a single company, based in New

York, with routes from Boston, New York and Chicago to Dallas, and from Dallas to Los

Angeles. The airline operated wood and fabric-covered Fokker Trimotors and all-metal Ford

Trimotors. In 1934 American began flying Curtiss Condor biplanes with sleeping berths.



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4. American Airlines before World War II

In 1934, American Airways Company was acquired by E.L. Cord, who renamed it "American

Air Lines". Cord hired Texas businessman C.R. (Cyrus Rowlett) Smith to run the company.

Smith worked with Donald Douglas to develop the DC-3, which American Airlines started flying

in 1936. With the DC-3, American began calling its aircraft "Flagships" and establishing the

Admirals Club for valued passengers. The DC-3s had a four-star "admiral's pennant" outside the

cockpit window while the aircraft was parked, one of the most well-known images of the airline

at the time. American Airlines was first to cooperate with Fiorello LaGuardia to build an airport

in New York City, and partly as a result became owner of the world's first airline lounge at the

new LaGuardia Airport (LGA), which became known as the Admirals Club. Membership was

initially by invitation but a discrimination suit decades later changed the club into a paid club,

creating the model for other airline lounges.

5. Postwar developments

After World War II, American launched an international subsidiary, American Overseas

Airlines, to serve Europe; AOA was sold to Pan Am in 1950. AA launched another subsidiary,

Lneas Areas Americanas de Mexico S.A., to fly to Mexico and built several airports there.

American Airlines provided advertising and free usage of its aircraft in the 1951 film Three Guys

Named Mike. American Airlines introduced the first transcontinental jet service using Boeing

707s on January 25, 1959. With its Astrojets, as it dubbed the jet fleet, American shifted to

nonstop coast-to-coast flights, although it maintained feeder connections to cities along its old

route using smaller Convair 990s and Lockheed Electras. American invested $440 million in jet

aircraft up to 1962, launched the first electronic booking system (Sabre) with IBM, and built an

upgraded terminal at Idlewild (now JFK) Airport in New York City which became the airline's

largest base.

6. Expansion in 1980s and 1990s

After moving headquarters to Fort Worth in 1979, American changed its routing to a hub-and-

spoke system in 1981, opening its first hubs at DFW and Chicago O'Hare. Led by its new



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chairman and CEO, Robert Crandall, American began flights from these hubs to Europe and

Japan in the mid-1980s. In the late 1980s, American opened three hubs for north-south traffic.

San Jose International Airport was added after American purchased AirCal. American also built

a terminal and runway at Raleigh-Durham International Airport for the growing Research

Triangle Park nearby and compete with USAir's hub in Charlotte. Nashville was also a hub. In

1990, American Airlines bought the assets of TWA's operations at London Heathrow for $445

million, giving American a hub there. Until the open skies agreement in April 2008, the

US/British treaty Bermuda II the only U.S. airlines to serve Heathrow were American and United

Airlines. Lower fuel prices and a favorable business climate led to higher than average profits.

The industry's expansion was not lost on pilots who on February 17, 1997 went on strike for

higher wages. President Bill Clinton invoked the Railway Labor Act citing economic impact to

the United States, quashing the strike. Pilots settled for lower wages than their demands. The

three new hubs were abandoned in the 1990s: some San Jose facilities were sold to Reno Air,

and at Raleigh/Durham to Midway Airlines. Midway went out of business in 2001. American

purchased Reno Air in February 1999 and integrated its operations on 31 August 1999, but did

not resume hub operations in San Jose. American discontinued most of Reno Air's routes, and

sold most of the Reno Air aircraft, as they had with Air California 12 years earlier. The only

remaining route from the Air California and Reno Air purchases is San Francisco to Los

Angeles.

During this time, concern over airline bankruptcies and falling stock prices brought a warning

from American's CEO Robert Crandall. "I've never invested in any airline," Crandall said. "I'm

an airline manager. I don't invest in airlines. And I always said to the employees of American,

'This is not an appropriate investment. It's a great place to work and it's a great company that

does important work. But airlines are not an investment.'" Crandall noted that since airline

deregulation of the 1970s, 150 airlines had gone out of business. "A lot of people came into the

airline business. Most of them promptly exited, minus their money," he said.



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Miami became a hub after American bought Central and South American routes from Eastern

Air Lines in 1990 (inherited from Braniff International Airways but originated by Panagra).

Through the 1990s, American expanded its network in Latin America to become the dominant

U.S. carrier in the region. On 15 October 1998 American Airlines became the first airline to offer

electronic ticketing in all 44 countries it serves.

7. TWA merger, 9/11, into present

Robert Crandall left in 1998 and was replaced by Donald J. Carty, who negotiated the purchase

of Trans World Airlines and its hub in St Louis in April 2001. The merger of seniority lists

remains contentious for pilots - the groups were represented by different unions. In the merger,

60 percent of former TWA pilots moved to the bottom of the seniority list at AA. All were

furloughed, and most remain on furlough. The most senior TWA captain, hired in 1963, was

integrated at the same seniority level as an AA captain hired in 1985.[citation needed] All TWA

captains and first officers hired in March 1989 and later were appended to the seniority list junior

to American Airlines first officers hired in June 2001. However, TWA pilots were given super-

seniority and a ratio of positions as captain if they stayed in St Louis. The result was that most

former TWA pilots stayed in St Louis and roughly maintained their relative seniority; though,

some left St Louis and flew in the co-pilot seat next to AA pilots who may have been hired at a

later date, but are more senior outside the protections afforded to that base. The extensive

furloughs of former TWA pilots in the wake of the 9/11 attack disproportionately affected St.

Louis and resulted in a significant influx of American Airlines pilots. For cabin crews, all former

TWA flight attendants (approximately 4,200) were furloughed by mid-2003 due to the AA flight

attendants' union putting TWA flight attendants at the bottom of their seniority list. American

Airlines began losing money in the wake of the TWA merger and the September 11, 2001

attacks. Carty negotiated wage and benefit agreements with the unions but resigned after union

leaders discovered he was planning to award executive compensation packages at the same time.

St Louis hub was also downsized. American has undergone additional cost-cutting, including

rolling back its "More Room throughout Coach" program (which eliminated several seats on

certain aircraft), ending three-class service on many international flights, and standardizing its

fleet at each hub (see below). However, the airline has expanded into new markets, including

Ireland, India and mainland China.



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On July 20, 2005, American announced a quarterly profit for the first time in 17 quarters; the

airline earned $58 million in the second quarter of 2005. It had previously lobbied for

preservation of the Wright Amendment, which regulates commercial airline operations at Love

Field in Dallas. On June 15, 2006, American agreed with Southwest Airlines and the cities of

Dallas and Fort Worth to seek repeal of the Wright Amendment on condition that Love Field

remained a domestic airport and its gate capacity be limited. American Airlines canceled 1,000

flights to inspect wire bundles over three days in April 2008 to make sure they complied with

government safety regulations. This caused significant inconvenience to passengers and financial

problems for the airline. American is replacing all its MD-80 jets with Boeing 737s. In May

2008, a month after mass grounding of aircraft, American announced capacity cuts and fees to

increase revenue and help cover high fuel prices. The airline increased fees such as a $15 charge

for the first checked bag and $25 for the second, as well as a $150 change fee for domestic

reservations. American Airlines announced in May that it expected to retire 40 to 45 mainline

aircraft in fall 2008, the majority fuel-inefficient MD-80s but also some Airbus A300s. AA's

regional airline will retire 35 to 40 regional jets as well as its Saab turboprop fleet. On July 2,

2008, American announced furloughs of up to 950 flight attendants, via Texas' Worker

Adjustment and Retraining Notification Act system. This furlough is in addition to the furlough

of 20 MD-80 aircraft. American's hub at SJU will be truncated from 38 to 18 daily inbound

flights, but the carrier will retain service in a diminished capacity.

On August 13, 2008, the Kansas City Star reported that American would move some overhaul

work from its Kansas City, Missouri base. Repairs on Boeing 757s will be in Tulsa, Oklahoma,

and some 767 maintenance will move there as well; one, possibly two, Boeing 767 repair lines

will be retained at Kansas City International Airport. The narrow-body repair hangar will be

shut. The city's aviation department offered to upgrade repair facilities on condition that the

airline maintains at least 700 jobs.



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1. Slogans

Current - "We know why you fly, we're American Airlines."

AA/TWA merger - "Two great airlines, one great future."

2001 (post-9/11) - "We are an airline that is proud to bear the name American."

Mid 1990s - "Based Here. Best Here."

Late 1980s - "No other Airline gives you more of America, than American."

Mid 1980s-mid 1990s - "Something special in the air." (Variant used for website:

"Something special online.")

1980s-1988- "The On-Time Machine."

1970s-1980s - "We're American Airlines, doing what we do best."

Early 1970s - "It's good to know you're on American Airlines."

1967-1969 - "Fly the American Way."

1964-1967 - "American built an airline for professional travelers."

1950s-early 1960s - "America's Leading (domestic) Airline."

8. Destinations

American Airlines serves four continents. Its network is developed in the Americas. Hubs at

Dallas/Fort Worth and Miami serve as gateways to the Americas, while American's Chicago hub

has become the airline's primary gateway to Europe and Asia. New York Kennedy (JFK) is a

primary gateway for both the Americas and Europe, while New York La Guardia (LGA) and St.

Louis are regional hubs. American is the only U.S. airline with scheduled flights to Anguilla,

Bolivia, Dominica, Grenada, Saint Vincent and the Grenadines, and Uruguay. American has

begun to expand in Asia, with mixed success. In 2005, American re-introduced a non-stop flight

from Dallas/Fort Worth to Osaka, which has since been discontinued. American also launched



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non-stop service from Chicago to Nagoya, but that too ended within a year. Also in 2005,

American launched service from Chicago to Delhi. This service has been profitable.[citation needed]

In April 2006, American began service from Chicago to Shanghai, also profitably. However, in

October 2006, American ceased its San Jose, CA to Tokyo/Narita service, leaving LAX as

American's sole international gateway on the West Coast. American planned flights between

Dallas/Fort Worth and Beijing via Chicago-O'Hare (on Westbound only) in 2007 but lost its bid

to United Airlines' Dulles to Beijing route. AA was granted permission in September 2007 to

start a Chicago-Beijing route in a new set of China routes in 2009.[citation needed] American has

recently begun non-stop service from Miami to the Brazilian cities of Belo Horizonte, Recife,

and Salvador. Also, American Airlines added nonstop flights from Dallas/Fort Worth to San

Salvador (Spring 2008) and Panama City, Panama (December 2007). Since then, service ended

in September 2008 to San Salvador, and once a week (DFW-PTY Saturday and PTY-DFW

Sunday) nonstop service remains. On May 1, 2009, American will begin daily Dallas-Fort Worth

to Madrid, Spain service. Madrid is currently served non-stop from Miami.

9. National

Many countries have national airlines that the government owns and operates. Fully private

airlines are subject to a great deal of government regulation for economic, political, and safety

concerns. For instance, the government often intervenes to halt airline labor actions in order to

protect the free flow of people, communications, and goods between different regions without

compromising safety. The United States, Australia, and to a lesser extent Brazil, Mexico, the

United Kingdom and Japan have "deregulated" their airlines. In the past, these governments

dictated airfares, route networks, and other operational requirements for each airline. Since

deregulation, airlines have been largely free to negotiate their own operating arrangements with

different airports, enter and exit routes easily, and to levy airfares and supply flights according to

market demand. The entry barriers for new airlines are lower in a deregulated market, and so the

U.S. has seen hundreds of airlines start up (sometimes for only a brief operating period). This has

produced far greater competition than before deregulation in most markets, and average fares

tend to drop 20% or more. The added competition, together with pricing freedom, means that

new entrants often take market share with highly reduced rates that, to a limited degree, full



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service airlines must match. This is a major constraint on profitability for established carriers,

which tend to have a higher cost base. As a result, profitability in a deregulated market is uneven

for most airlines. These forces have caused some major airlines to go out of business, in addition

to most of the poorly established new entrants.

10. International

Groups such as the International Civil Aviation Organization establish worldwide standards for

safety and other vital concerns. Most international air traffic is regulated by bilateral agreements

between countries, which designate specific carriers to operate on specific routes. The model of

such an agreement was the Bermuda Agreement between the US and UK following World War

II, which designated airports to be used for transatlantic flights and gave each government the

authority to nominate carriers to operate routes. Bilateral agreements are based on the "freedoms

of the air," a group of generalized traffic rights ranging from the freedom to overfly a country to

the freedom to provide domestic flights within a country (a very rarely granted right known as

cabotage). Most agreements permit airlines to fly from their home country to designated airports

in the other country: some also extend the freedom to provide continuing service to a third

country, or to another destination in the other country while carrying passengers from overseas.

In the 1990s, "open skies" agreements became more common. These agreements take many of

these regulatory powers from state governments and open up international routes to further

competition. Open skies agreements have met some criticism, particularly within the European

Union, whose airlines would be at a comparative disadvantage with the United States' because of

cabotage restrictions.



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11. Economic considerations

Historically, air travel has survived largely through state support, whether in the form of equity

or subsidies. The airline industry as a whole has made a cumulative loss during its 120-year

history, once the costs include subsidies for aircraft development and airport construction. One

argument is that positive externalities, such as higher growth due to global mobility, outweigh

the microeconomic losses and justify continuing government intervention. A historically high

level of government intervention in the airline industry can be seen as part of a wider political

consensus on strategic forms of transport, such as highways and railways, both of which receive

public funding in most parts of the world. Profitability is likely to improve in the future as

privatization continues and more competitive low-cost carriers proliferate. Although many

countries continue to operate state-owned or parastatal airlines, many large airlines today are

privately owned and are therefore governed by microeconomic principles in order to maximize

shareholder profit.

12. Ticket revenue

Airlines assign prices to their services in an attempt to maximize profitability. The pricing of

airline tickets has become increasingly complicated over the years and is now largely determined

by computerized yield management systems. Because of the complications in scheduling flights

and maintaining profitability, airlines have many loopholes that can be used by the

knowledgeable traveler. Many of these airfare secrets are becoming more and more known to the

general public, so airlines are forced to make constant adjustments. Most airlines use

differentiated pricing, a form of price discrimination, in order to sell air services at varying prices

simultaneously to different segments. Factors influencing the price include the days remaining



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until departure, the booked load factor, the forecast of total demand by price point, competitive

pricing in force, and variations by day of week of departure and by time of day. Carriers often

accomplish this by dividing each cabin of the aircraft (first, business and economy) into a

number of travel classes for pricing purposes. A complicating factor is that of origin-destination

control ("O&D control"). Someone purchasing a ticket from Melbourne to Sydney (as an

example) for AU$200 is competing with someone else who wants to fly Melbourne to Los

Angeles through Sydney on the same flight, and who is willing to pay AU$1400. Should the

airline prefer the $1400 passenger, or the $200 passenger plus a possible Sydney-Los Angeles

passenger willing to pay $1300? Airlines have to make hundreds of thousands of similar pricing

decisions daily.

The advent of advanced computerized reservations systems in the late 1970s, most notably

Sabre, allowed airlines to easily perform cost-benefit analyses on different pricing structures,

leading to almost perfect price discrimination in some cases (that is, filling each seat on an

aircraft at the highest price that can be charged without driving the consumer elsewhere). The

intense nature of airfare pricing has led to the term "fare war" to describe efforts by airlines to

undercut other airlines on competitive routes. Through computers, new airfares can be published

quickly and efficiently to the airlines' sales channels. For this purpose the airlines use the Airline

Tariff Publishing Company (ATPCO), who distributes latest fares for more than 500 airlines to

Computer Reservation Systems across the world. The extent of these pricing phenomena is

strongest in "legacy" carriers. In contrast, low fare carriers usually offer preannounced and

simplified price structure, and sometimes quote prices for each leg of a trip separately.

Computers also allow airlines to predict, with some accuracy, how many passengers will actually

fly after making a reservation to fly. This allows airlines to overbook their flights enough to fill

the aircraft while accounting for "no-shows," but not enough (in most cases) to force paying

passengers off the aircraft for lack of seats. Since an average of ⅓ of all seats are flown empty,

simulative pricing for low demand flights coupled with overbooking on high demand flights can

help reduce this figure.



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13. Operating costs

Full-service airlines have a high level of fixed and operating costs in order to establish and

maintain air services: labor, fuel, airplanes, engines, spares and parts, IT services and networks,

airport equipment, airport handling services, sales distribution, catering, training, aviation

insurance and other costs. Thus all but a small percentage of the income from ticket sales is paid

out to a wide variety of external providers or internal cost centers. Moreover, the industry is

structured so that airlines often act as tax collectors. Airline fuel is untaxed, however, due to a

series of treaties existing between countries. Ticket prices include a number of fees, taxes, and

surcharges they have little or no control over, and these are passed through to various providers.

Airlines are also responsible for enforcing government regulations. If airlines carry passengers

without proper documentation on an international flight, they are responsible for returning them

back to the originating country. Analysis of the 1992-1996 period shows that every player in the

air transport chain is far more profitable than the airlines, which collect and pass through fees

and revenues to them from ticket sales. While airlines as a whole earned 6% return on capital

employed (2-3.5% less than the cost of capital), airports earned 10%, catering companies 10-

13%, handling companies 11-14%, aircraft lessors 15%, aircraft manufacturers 16%, and global

distribution companies more than 30%. In contrast, Southwest Airlines has been the most

profitable of airline companies since 1970.

The widespread entrance of a new breed of low cost airlines beginning at the turn of the century

has accelerated the demand that full service carriers control costs. Many of these low cost

companies emulate Southwest Airlines in various respects, and like Southwest, they are able to

eke out a consistent profit throughout all phases of the business cycle. As a result, a shakeout of

airlines is occurring in the U.S. and elsewhere. United Airlines, US Airways (twice), Delta Air

Lines, and Northwest Airlines have all declared Chapter 11 bankruptcy. Some argue that it

would be far better for the industry as a whole if a wave of actual closures were to reduce the

number of "undead" airlines competing with healthy airlines while being artificially protected



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from creditors via bankruptcy law. On the other hand, some have pointed out that the reduction

in capacity would be short lived given that there would be large quantities of relatively new

aircraft that bankruptcies would want to get rid of and would re-enter the market either as

increased fleets for the survivors or the basis of cheap planes for new startups. Where an airline

has established an engineering base at an airport then there may be considerable economic

advantages in using that same airport as a preferred focus (or "hub") for its scheduled flights.

14. Assets and financing

Airline financing is quite complex, since airlines are highly leveraged operations. Not only must

they purchase (or lease) new airliner bodies and engines regularly, they must make major long-

term fleet decisions with the goal of meeting the demands of their markets while producing a

fleet that is relatively economical to operate and maintain. Compare Southwest Airlines and their

reliance on a single airplane type (the Boeing 737 and derivatives), with the now defunct Eastern

Air Lines which operated 17 different aircraft types, each with varying pilot, engine,

maintenance, and support needs. A second financial issue is that of hedging oil and fuel

purchases, which are usually second only to labor in its relative cost to the company. However,

with the current high fuel prices it has become the largest cost to an airline. While hedging

instruments can be expensive, they can easily pay for themselves many times over in periods of

increasing fuel costs, such as in the 2000-2005 periods.

In view of the congestion apparent at many international airports, the ownership of slots at

certain airports (the right to take-off or land an aircraft at a particular time of day or night) has

become a significant tradable asset for many airlines. Clearly take-off slots at popular times of

the day can be critical in attracting the more profitable business traveler to a given airline's flight

and in establishing a competitive advantage against a competing airline. If a particular city has

two or more airports, market forces will tend to attract the less profitable routes, or those on



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which competition is weakest, to the less congested airport, where slots are likely to be more

available and therefore cheaper. Other factors, such as surface transport facilities and onward

connections, will also affect the relative appeal of different airports and some long distance

flights may need to operate from the one with the longest runway.

15. Airline partnerships

Code sharing is the most common type of airline partnership; it involves one airline selling

tickets for another airline's flights under its own airline code. An early example of this was Japan

Airlines' code sharing partnership with Aeroflot in the 1960s on flights from Tokyo to Moscow:

Aeroflot operated the flights using Aeroflot aircraft, but JAL sold tickets for the flights as if they

were JAL flights. This practice allows airlines to expand their operations, at least on paper, into

parts of the world where they cannot afford to establish bases or purchase aircraft. Another

example was the Austrian- Sabena partnership on the Vienna-Brussels-New York JFK route

during the late 60's, using a Sabena Boeing 707 with Austrian colors. Since airline reservation

requests are often made by city-pair (such as "show me flights from Chicago to Dsseldorf"), an

airline who is able to code share with another airline for a variety of routes might be able to be

listed as indeed offering a Chicago-Dsseldorf flight. The passenger is advised however, that

Airline 1 operates the flight from say Chicago to Amsterdam, and Airline 2 operates the

continuing flight (on a different airplane, sometimes from another terminal) to Dsseldorf. Thus

the primary rationale for code sharing is to expand one's service offerings in city-pair terms so as

to increase sales.

A more recent development is the airline alliance, which became prevalent in the 1990s. These

alliances can act as virtual mergers to get around government restrictions. Groups of airlines

such as the Star Alliance, Oneworld, and SkyTeam coordinate their passenger service programs

(such as lounges and frequent flyer programs), offer special interline tickets, and often engage in

extensive codesharing (sometimes systemwide). These are increasingly integrated business

combinations-- sometimes including cross-equity arrangements-- in which products; service

standards, schedules, and airport facilities are standardized and combined for higher efficiency.



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One of the first airlines to start an alliance with another airline was KLM, who partnered with

Northwest Airlines. Both airlines later entered the SkyTeam alliance after the fusion of KLM and

Air France in 2004. Often the companies combine IT operations, buy fuel, or purchase airplanes

as a bloc in order to achieve higher bargaining power. However, the alliances have been most

successful at purchasing invisible supplies and services, such as fuel. Airlines usually prefer to

purchase items visible to their passengers to differentiate themselves from local competitors. If

an airline's main domestic competitor flies Boeing airliners, then the airline may prefer to use

Airbus aircraft regardless of what the rest of the alliance chooses.

16. Environmental impacts

Aircraft engines emit noise pollution, gases and particulate emissions, and contribute to global

warming and global dimming. Modern turbofan and turboprop engines are considerably more

fuel-efficient and less polluting than earlier models. However, despite this, the rapid growth of

air travel in recent years contributes to an increase in total pollution attributable to aviation,

offsetting some of the reductions achieved by automobiles. In the EU greenhouse gas emissions

from aviation increased by 87% between 1990 and 2006. In the context of climate change and

peak oil, there is a debate about possible taxation of air travel and the inclusion of aviation in an

emissions trading scheme, with a view to ensuring that the total external costs of aviation are

taken into account. The airline industry is responsible for about 11 percent of greenhouse gases

emitted by the U.S. transportation sector. Boeing estimates that biofuels could reduce flight-

related greenhouse-gas emissions by 60 to 80 percent. The solution would be blending algae

fuels with existing jet fuel:

Boeing and Air New Zealand are collaborating with leading Brazilian biofuels maker Tecbio and

Aquaflow Bionomic of New Zealand and other jet biofuel developers around the world. Virgin

Atlantic and Virgin Green Fund are looking into the technology as part of a biofuels initiative.

17. Call signs



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Each operator of a scheduled or charter flight uses a airline call sign when communicating with

airports or air traffic control centers. Most of these call-signs are derived from the airline's trade

name, but for reasons of history, marketing, or the need to reduce ambiguity in spoken English

(so that pilots do not mistakenly make navigational decisions based on instructions issued to a

different aircraft), some airlines and air forces use call-signs less obviously connected with their

trading name. For example, British Airways uses a Speedbird call-sign, named after the logo of

its predecessor, BOAC, while America West used Cactus reflecting that company's home in the

state of Arizona and to differentiate itself from numerous other airlines using America and West

in their call signs.

18. Airline personnel

The various types of airline personnel include:

Flight crews, responsible for the operation of the aircraft. Flight crew members include:

1. Pilots (Captain and First Officer: some older aircraft also required a Flight

Engineer and or a Navigator)

2. Flight attendants, (led by a purser on larger aircraft)

3. in-flight security personnel on some airlines (most notably El Al)

Groundcrew, responsible for operations at airports. Ground crew members include:

1. Aerospace and avionics engineers responsible for certifying the aircraft for

flight and management of aircraft maintenance

▪ Aerospace engineers, responsible for airframe, powerplant and electrical

systems maintenance

▪ Avionics engineers responsible for avionics and instruments

maintenance

2. Airframe and powerplant technicians

3. Electric System technicians, responsible for maintenance of electrical systems

4. Avionics technicians, responsible for maintenance of avionics

5. Flight dispatchers

6. Baggage handlers



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7. Rampers

8. Gate agents

9. Ticket agents

10. Passenger service agents (such as airline lounge employees)

Reservation agents, usually (but not always) at facilities outside the airport. Airlines

follow a corporate structure where each broad area of operations (such as maintenance, flight

operations, and passenger service) is supervised by a vice president. Larger airlines often appoint

vice presidents to oversee each of the airline's hubs as well. Airlines employ lawyers to deal with

regulatory procedures and other administrative tasks.

19. Industry Trends

The pattern of ownership has gone from government owned or supported to independent, for-

profit public companies. This occurs as regulators permit greater freedom and non-government

ownership, in steps that are usually decades apart. This pattern is not seen for all airlines in all

regions. The overall trend of demand has been consistently increasing. In the 1950s and 1960s,

annual growth rates of 15% or more were common. Annual growth of 5-6% persisted through

the 1980s and 1990s. Growth rates are not consistent in all regions, but countries with a de-

regulated airline industry have more competition and greater pricing freedom. This results in

lower fares and sometimes dramatic spurts in traffic growth. The U.S., Australia, Canada, Japan,

Brazil, Mexico, India and other markets exhibit this trend. The industry has been observed to be

cyclical in its financial performance. Four or five years of poor earnings proceed five or six years

of improvement. But profitability even in the good years is generally low, in the range of 2-3%

net profit after interest and tax. In times of profit, airlines lease new generations of airplanes and

upgrade services in response to higher demand. Since 1980, the industry has not earned back the

cost of capital during the best of times. Conversely, in bad times losses can be dramatically

worse. Warren Buffett once said that despite all the money that has been invested in all airlines,



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the net profit is less than zero. He believes it is one of the hardest businesses to manage. As in

many mature industries, consolidation is a trend. Airline groupings may consist of limited

bilateral partnerships, long-term, multi-faceted alliances between carriers, equity arrangements,

mergers, or takeovers. Since governments often restrict ownership and merger between

companies in different countries, most consolidation takes place within a country. In the U.S.,

over 200 airlines have merged, been taken over, or gone out of business since deregulation in

1978. Many international airline managers are lobbying their governments to permit greater

consolidation to achieve higher economy and efficiency

In Section 2 of this course you will cover these topics:Competition Issues

Route Networks

You may take as much time as you want to complete the topic coverd in section 2.There is no time limit to finish any Section, However you must finish All Sections before

semester end date.

If you want to continue remaining courses later, you may save the course and leave.You can continue later as per your convenience and this course will be avalible in your

area to save and continue later.

Topic Objective:


Airline Business Models

Boeing vs. Airbus

Ticket Sales

Oil Prices, the Direct Effect on Ticket Prices

What is Deregulation?

History of Deregulation:

The Effects:



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Airline industry has grown tremendously. Figure 1 shows the number of domestic U.S. airline

passengers and, for comparison purposes, the same figures for Canada, both over the past 25

years. The U.S. experienced a 225% growth over this period, while Canada, which deregulated

its airline industry later and has always had much less competition than the United States, saw a

much smaller growth rate of 80%.Thus, it appears that deregulation, particularly in combination

with competition, can spur growth in the airline industry. Over the last 20 years, many of the

nation's biggest airlines have shut down or been acquired by other airlines. The list includes

Eastern, Pan Amstar, Republic, Piedmont, Ozark, and Texas Air. Because of the huge amount of

exit, some observers argue that the airline industry is inherently unstable and requires

government intervention. It is true that profits in the airline industry can fluctuate wildly,

precipitating exit. For instance, while United reported a record net loss of $542 million in the

third quarter of 2001, they reported earnings of $425 million and $359 million in the

corresponding quarters of 1998 and 1999, respectively. The reason for these fluctuations is that

an airline's costs are largely driven by labor and fuel, which are fixed in the short run. Hence,

moderate fluctuations in demand, such as those caused by the events of September 11, can

hugely affect profits. The robust earnings of most airlines in 1998 and 1999 can be traced both to

the booming economy that spurred demand, particularly for high-fare business travelers, and to

low fuel prices.

Key Points:

1. Airline Business Models

1.1. Hub-and-Spoke vs. Low-Cost



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The traditional operating model for large U.S. and European airlines has been the hub-and-

spoke approach. This model enables airlines to virtually take anyone from any place to any

desired destination. However, many industry analysts consider this model as no longer

competitively sustainable in its present form due to industry changes and exterior economic

effects. Within the traditional airline business model, costs quickly build up as a result of the

complex system that is used to operate. The business model is based on offering consumers a

larger number of destinations with significant flexibility such as last-minute seat

reassignments, upgrades, and frills like meals, private lounges, and entertainment. Thus the

model is troubled by the included cost penalties of synchronized hub operations, with long

aircraft turnaround times and slack built into schedules to increase connectivity by ensuring

there is time for passengers and baggage to make connections. In addition, the hub-and-spoke

business model relies on highly sophisticated information systems and infrastructure to

optimize its complex operations. Essentially the traditional model supports a system that

inherently accepts a slower pace of business to accommodate incessant change.

The low-cost model is a simple, focused, and highly productive business model founded on

nonstop air travel to and from medium to high density markets at significantly lower prices.

Low-cost carriers pay lower salaries, use cheaper airports, and leverage resources much more

effectively than hub-and-spoke carriers. The cost disparity between the hub-and-spoke

carriers and low-cost carriers is 2 to 1 for the same stage length and aircraft, even after

adjustments for differences in pay scales, fuel prices, and seat density are made. Many hub-

and-spoke carriers are attempting to reproduce the low-cost model through subsidiaries such

as United Airlines Ted because they realize that their survival depends on overhauling their

archaic model.



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Considering the respective models in relation to productivity, carriers that maintain

operations based on the traditional model are struggling to stay afloat in the present

economy, where as carriers that were either founded on the low-cost model or have adopted

it, are actually turning profits. In further comparison of the two models it is interesting to

note that the biggest difference in terms of their success is their production models. The

production model for traditional carriers, which effects scheduling, processing, pace, and

distribution, makes up 65% of the disparity in costs compared to low-cost carries, and

surprisingly on 5% of the difference is because of "frills." Another 15% applies to

compensation and other labor issues, and 12% to financial structure. The overall difference

between the average hub-and-spoke carrier and low-cost carrier is 7.2 cents per seat mile. It

is quite clear that the issue with hub-and-spoke carriers is the complexity of their operations

model and not "frills." Thus because the traditional operating model of major U.S. and

European airlines is flawed and unproductive, consumers and the governments absorb the

cost of their failure.

2. Boeing vs. Airbus

The airplane manufacturing industry is dominated by two companies: The Boeing Company and

Airbus S.A.S. Boeing is the world's leading aerospace company and the largest manufacturer of

commercial jetliners and military aircraft combined. Airbus began as a consortium between

France and Germany which was later joined by Spain and Britain. Their fight for market share is

the clearest example of global competition going on in the world today (15, 16).

Airbus and Boeing is in tight competition with every year for aircraft orders. Airbus has

managed to win over 50% of aircraft orders in recent years. However, once again Boeing

surpassed Airbus in 2005 and 2006 as a result of their success in the market for wide body

aircraft.



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2.1. The impact of the weak dollar

Much controversy surrounds this international competition. The economic impact of the

weak dollar has give Boeing a tremendous advantage in the global airplane markets. In,

addition, both companies are accused of violating world-trade agreements relating to

restricting government subsidies (18,19). Both companies sell their airplanes in US

Dollars; however Boeings manufacturing is primarily done in the United States while

Airbus manufactures in Europe. This means that Airbus pays its cost in euros while

Boeing spends dollars. The falling dollar means Airbus earns fewer euros causing a

squeeze on profits. The weak dollar and the costly delays in the introduction of the jumbo

A380 has cost the company billions of euros. Just two weeks ago Airbuss chief executive,

Tom Enders, proclaimed that the weak dollar is life threatening to the European airplane

manufacturer. While there is much debate as to whether Airbuss life is truly in danger,

there are definitely indications of pain. Early this year Airbus devised a plan to turn

things around; the plan calls for the closing of six factories and terminating 10,000

employees. Boeing has been on the receiving end of the weak dollar situation. Revenue

from their commercial airplane business is up 18% for the nine-months ended September

30, 2007 from the same period in 2006. The value of Boeing stock is almost double

where it was at the end of 2004. The manufacturing delays at Airbus has also helped fuel

orders of Boeing planes (20,21).

2.2. The Subsidy War

Boeings recent success not stopped the company from crying foul over Airbuss receipt of

unfair government subsidies. U.S. Trade Representatives decided to file a formal

complaint with the World Trade Organization claiming that the European Union has

provided Airbus with billions of dollars of unfair subsidies. The subsidies received by

Airbus are referred to as launch aid and provides money for the development of new

commercial airplanes. The Europeans claim that launch aid is no more than a loan to the

company to be paid back from sales of the planes. However, launch aid transfers the risk

of manufacturing from Airbus to the European governments because the loan does not

need to be repaid if the aircraft program is unsuccessful. For example, if Airbuss A380

fails to sell the company will not have to repay the $3 billion in loans it has already



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received. Boeing claims that these subsidies provide Airbus an unfair economic

advantage that is strictly forbidden in the 1992 bilateral aircraft-development agreement.

Airbus and the European Union argue that launch aid is nothing more than repayable

loans which are acceptable according to the agreement. They go on to accuse Boeing of

receiving illegal subsidies for its midsize 7E7 Dreamliner program. However, the

subsidies that the EU mostly refer to is the $3.2 in tax breaks Boeing secured from the

stat of Washington for the 7E7 program. This benefit to Boeing comes over a twenty year

period as reduced sales tax on airplane sales. The big difference is that Boeing only

benefits if the plane is successful and only after they have made a substantial investment

in the development of the aircraft. Airbus, on the other hand does not need to repay the

$3 billion loan if the A380 fails to sell. Also, the tax break provided to Boeing is

available to anyone in the aerospace industry including Airbus. The subsidy war

continues to wage on through mostly rhetoric. How it plays out in the international

governing bodies such as the World Trade Organization is yet uncertain (22, 23, 24, and

25).

3. Ticket Sales

In attempts to fully maximize profits the airlines focus on the price of tickets. Since everything in

the last couple of years, especially since 9/11, has changed, the price of tickets has become a

very confusing aspect of the airline industry and has changed rapidly. Most airlines use

differentiated pricing, a form of price discrimination, in order to sell air services at different

prices and in different time segments to coop with the losses that would normally occur. There

are many factors that contribute to determining the price of tickets. These factors include the

days remaining until departure, the current booked load factor, the projected public demand and

variations by the day of the week the departure is and the time of day. This price distribution is

obviously done mostly by seating classes.



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The beginning of advanced computerized reservations systems in the late 1970s allowed

competing airline industries to easily perform cost-benefit analyses on different pricing

techniques, which lead to almost perfect price discrimination by filling each seat on an aircraft at

the highest price possible without driving the consumer elsewhere. This crazy aspect of the

industry has caused airlines to compete for lower prices on same routes and because of this

competition aspect, most airlines experience major losses as a result. These ticket prices end up

having the greatest impact in the industry because due to operating costs, the income that is

distributed amongst providers, even at its highest, is only a small portion of the overall income.

Basically in the end, if the ticket prices are too low, the revenue won't cover the operating costs

and competing airlines would see decreased profits and won't be able to keep up with the market.

United Airlines, US Airways (twice), Delta Air Lines, and Northwest Airlines have all declared

Chapter 11 bankruptcy, and American has barely avoided doing so, just proving the effects of

ticket sales.

4. Oil Prices, the Direct Effect on Ticket Prices

4.1. Introduction:

Over the past few fiscal quarters oil prices have steadily increased due to scarcity and

high demand. In 2003 a barrel of crude oil was under $25 on the NYMEX; in August

2005 the market saw prices rise to $60 per barrel, and currently (October 2007) the prices

have been floating around $92 per barrel. At the same time the value of the US dollar has

been in a steady decline, which could be seen, as one of the reasons oil prices have

peaked. Oil is almost always bought and sold in US dollars, even when this is not the

currency of either vendor or buyer, it is easy to be confused by the movement of the



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dollar relative to other currencies. Higher oil prices have constrained airline budgets,

pushing them into debt; as a result airlines have raised ticket prices to subsidize the

increased cost of operations. In todays global society, travelers search the Internet to find

cheap tickets, and last minute deals but as operation costs rise, these deals will disappear.

4.2. Summary of the Problem:

Due to the rise in oil prices the International Airline Industry is set to lose six billion

dollars. According to the International Air Transport Association (IATA) the airlines

industries fuel bill accounts for approximately 22 percent of its total operations cost.

Subsequently, it has raised $39 billion over the past two years. Between 2001-2005 the

global airline industry has calculated $42 billion in net losses alone, with $ 9.1 billion in

net losses coming from the US air industry. The IATA has estimated that airlines would

struggle to break even if the oil prices settled around $35 a barrel. Unfortunately, jet fuel

prices have held solid at above $70 for more than a year now. As both international and

domestic airline providers search for a way to balance their budget, increase ticket prices

are the short-term solution for a long-term problem.

4.3. Domestic Effect:

The effect of rising oil prices has minimized the margin between operating costs and

revenues for the entire Airline Industry. As a direct result ticket prices have begun to rise

to cushion financial positions of most airline companies. Consumers are now

experiencing the impact of oil prices on fares, and the availability of those cheap tickets.

Such companies as American Airlines, Continental Airlines, and Southwest Airlines have

financially felt the pinch:

American Airlines: Annual fuel costs rose $80 million for every dollar increase in a barrel

of oil, said Thomas W. Horton, the chief financial officer of AA. He has stated that the

difference between Januarys low and todays price would translate to an increase of $3

billion a year. One JP Morgan analyst, Jamie Baker, suggested that American and others



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needed to raise fares in order to offset the fuel price hike. American has already

implemented transatlantic and domestic fuel charges. Continental Airlines: Its financial

position is deteriorating, as a result they have canceled new aircraft orders, as well as,

selling 24 Boeing 737-500 jetliners. Continental has stated that they will be cutting $800

million in labor costs as opposed to the $500 million they had originally projected.

Southwest Airlines: Owns long-term contracts to buy most of its fuel through 2009 for

what it would cost if oil were $51 a barrel. The value of those hedges soared as oil raced

above $90 a barrel, and they are now worth more than $2 billion. Those gains will mostly

be realized over the next two years.

4.4. International Effect:

Internationally, rising oil costs have lead airlines to implement the same oil surcharges on

tickets. Indias Jet Airways announced its seventh hike in fuel surcharge within a 12-

month period of $7.60 or 300 rupees. As much as the US consumer and airlines are

fiscally strained by the rise of oil prices; the Indian aviation fuel prices are among the

highest in the world and account for 40% of the operating costs for domestic airlines.

Japanese airline, Singapore Air announced that it would increase fuel surcharges on its

ticket prices in many of their long haul international flights. According to Bloomberg, the

cost of a barrel of refined Singapore Jet fuel hit a record high of US$116.80 on Monday.

It is now hovering around US$113 a barrel. S.A to Australia will increase from $67 to

$75, as well as, a $36 surcharge on flights to and from Europe.

5. What is Deregulation?

The process of removing government regulatory controls from an industry.

The reduction or elimination of government power in industry, usually done to create

more competition within the industry.

6. History of Deregulation:

From 1938-1978; the Civil Aeronautics Board (CAB) all domestic air transport, setting

fares, routes, and schedules.



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CAB manipulated fares (long- haul, and short- haul) to ensure that airlines would have a

good rate of return.

In the 1970s the CAB fell under new economic pressures due to the 1973 energy crisis

and national stagflation.

New technology innovations introduced the jumbo jet to Airline carriers. They favored

the CAB because of guaranteed rates of return; however, passenger fares kept climbing.

Economist feared that consumers would choose cheaper methods of travel and that

regulation had leaded the Airline industry to be "inefficient" and "pricey".

Congress believes that the CAB was stunting the Airline Industries growth through subsides and

shielding from market forces.

In 1977, Jimmy Carter/ Congressional Democrats wanted to shift air transportation

system to rely more on competitive market forces.

The Act removed CAB regulation.

7. The Effects:

Lower fares

Increase competition between airlines

Exposes the Industry to free market forces

Airlines have the ability to choose profitable routes

Increased air safety standards

Increased quality of service

Topic Objective:


Air Traffic

Airport control

Ground Control

Local or Air Control

Clearance delivery

Approach and terminal control



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En-route, center, or area control

General characteristics

Radar coverage

Flight traffic mapping

Problems

Call signs

Technology

Major accidents


Under the route network, airlines operate the domestic flights and short-haul flights. Route

networks operate medium- haul international flights as well as. This division bases on a profile

of international passengers traveling on flights longer than four hours, who are predominantly

business travelers and prefer more complete service.

Key Points:

1. Air Traffic

Air traffic control (ATC) is a service provided by ground-based controllers who direct aircraft on

the ground and in the air. The primary purpose of ATC systems worldwide is to separate aircraft

to prevent collisions, to organize and expedite the flow of traffic, and to provide information and

other support for pilots when able. In some countries, ATC may also play a security or defense

role (as in the United States), or actually be run entirely by the military (as in Brazil). Air traffic

control was first introduced at London's Croydon Airport in 1921. Archie League, who

controlled aircraft using colored flags at what is today Lambert-St. Louis International Airport, is

often considered the first air traffic controller. Preventing collisions is referred to as separation,



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which is a term used to prevent aircraft from coming too close to each other by use of lateral,

vertical and longitudinal separation minima; many aircraft now have collision avoidance systems

installed to act as a backup to ATC observation and instructions.

In addition to its primary function, the ATC can provide additional services such as providing

information to pilots, weather and navigation information and NOTAMs (Notices to Airmen). In

many countries, ATC services are provided throughout the majority of airspace, and its services

are available to all users (private, military, and commercial). When controllers are responsible

for separating some or all aircraft, such airspace is called "controlled airspace" in contrast to

"uncontrolled airspace" where aircraft may fly without the use of the air traffic control system.

Depending on the type of flight and the class of airspace, ATC may issue instructions that pilots

are required to follow, or merely flight information (in some countries known as advisories) to

assist pilots operating in the airspace. In all cases, however, the pilot in command has final

responsibility for the safety of the flight, and may deviate from ATC instructions in an

emergency. To ensure communication, all pilots and all controllers everywhere are required to be

able to speak and understand English. While they may use any compatible language, English

must be used if requested. The native language for the region is normally used. FAA Control

Tower Operators (CTO)/Air Traffic Controllers use FAA Order 7110.65S as the authority for all

procedures regarding air traffic.

2. Airport control

The primary method of controlling the immediate airport environment is visual observation from

the control tower. The tower is a tall, windowed structure located on the airport grounds.

Aerodrome or Tower controllers are responsible for the separation and efficient movement of

aircraft and vehicles operating on the taxiways and runways of the airport itself, and aircraft in

the air near the airport, generally 2 to 5 nautical miles (3.7 to 9.2 km) depending on the airport



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procedures. Radar displays are also available to controllers at some airports. Controllers may use

a radar system called Secondary Surveillance Radar for airborne traffic approaching and

departing. These displays include a map of the area, the position of various aircraft, and data tags

that include aircraft identification, speed, heading, and other information described in local

procedures. The areas of responsibility for tower controllers fall into three general operational

disciplines; Ground Control, Local or Air Control, and Clearance Delivery -- other categories,

such as Apron Control or Ground Movement Planner, may exist at extremely busy airports.

While each tower's procedures will vary and while there may be multiple teams in larger towers

that control multiple runways, the following provides a general concept of the delegation of

responsibilities within the tower environment.

3. Ground Control

Ground Control (sometimes known as Ground Movement Control abbreviated to GMC or

Surface Movement Control abbreviated to SMC) is responsible for the airport "maneuvering"

areas, or areas not released to the airlines or other users. This generally includes all taxiways,

inactive runways, holding areas, and some transitional aprons or intersections where aircraft

arrive having vacated the runway and departure gates. Exact areas and control responsibilities are

clearly defined in local documents and agreements at each airport. Any aircraft, vehicle, or

person walking or working in these areas is required to have clearance from the ground

controller. This is normally done via VHF radio, but there may be special cases where other

processes are used. Most aircraft and airside vehicles have radios. Aircraft or vehicles without

radios will communicate with the tower via aviation light signals or will be led by vehicles with

radios. People working on the airport surface normally have a communications link through

which they can reach or be reached by ground control, commonly either by handheld radio or

even cell phone. Ground control is vital to the smooth operation of the airport because this

position might constrain the order in which the aircraft will be sequenced to depart, which can

affect the safety and efficiency of the airport's operation. Some busier airports have Surface

Movement Radar (SMR), such as, ASDE-3, AMASS or ASDE-X, designed to display aircraft

and vehicles on the ground. These are used by the ground controller as an additional tool to

control ground traffic, particularly at night or in poor visibility. There are a wide range of



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capabilities on these systems as they are being modernized. Older systems will display a map of

the airport and the target. Newer systems include the capability to display higher quality

mapping, radar target, data blocks, and safety alerts.

4. Local or Air Control

Local or Air Control (most often referred to as the generic "Tower" control, although Tower

control can also refer to a combination of the local, ground and clearance delivery positions) is

responsible for the active runway surfaces. The Air Traffic Control Tower clears aircraft for take

off or landing and ensures the runway is clear for these aircraft. If the tower controller detects

any unsafe condition, a landing aircraft may be told to "go-around" and be re-sequenced into the

landing pattern by the approach or terminal area controller. Within the tower, a highly

disciplined communications process between tower and ground control is an absolute necessity.

Ground control must request and gain approval from tower control to cross any runway with any

aircraft or vehicle. Likewise, tower control must ensure ground control is aware of any

operations that impact the taxiways and must work with the approach radar controllers to ensure

"holes" or "gaps" in the arrival traffic are created (where necessary) to allow taxiing traffic to

cross runways and to allow departing aircraft to take off. Crew Resource Management (CRM)

procedures are often used to ensure this communication process is efficient and clear, although

this is not as prevalent as CRM for pilots.

5. Clearance delivery

Clearance delivery is the position that issues route clearances to aircraft before they commence

taxiing. These contain details of the route that the aircraft is expected to fly after departure. This

position will, if necessary, coordinate with the en-route center and national command center or

flow control to obtain releases for aircraft. Often however such releases are given automatically

or are controlled by local agreements allowing "free-flow" departures. When weather or

extremely high demand for a certain airport or airspace becomes a factor, there may be ground

"stops" (or "slot delays") or re-routes may be necessary to ensure the system does not get



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overloaded. The primary responsibility of the clearance delivery position is to ensure that the

aircraft have the proper route and slot time. This information is also coordinated with the en-

route center and the ground controller in order to ensure the aircraft reaches the runway in time

to meet the slot time provided by the command center. At some airports the clearance delivery

controller also plans aircraft pushbacks and engine starts and is known as Ground Movement

Planner (GMP): this position is particularly important at heavily congested airports to prevent

taxiway and apron gridlock.

6. Approach and terminal control

Many airports have a radar control facility that is associated with the airport. In most countries,

this is referred to as Approach or Terminal Control; in the U.S., it is often still referred to as a

TRACON (Terminal Radar Approach Control) facility. While every airport varies, terminal

controllers usually handle traffic in a 30 to 50 nautical mile (56 to 93 km) radius from the airport.

Where there are many busy airports in close proximity, one single terminal control may service

all the airports. The actual airspace boundaries and altitudes assigned to a terminal control are

based on factors such as traffic flows, neighboring airports and terrain, and vary widely from

airport to airport: a large and complex example is the London Terminal Control Centre which

controls traffic for five main London airports up to 20,000 feet (6,100 m) and out to 100+

nautical miles. Terminal controllers are responsible for providing all ATC services within their

airspace. Traffic flow is broadly divided into departures, arrivals, and over flights. As aircraft

move in and out of the terminal airspace, they are handed off to the next appropriate control

facility (a control tower, an en-route control facility, or a bordering terminal or approach

control). Terminal control is responsible for ensuring that aircraft are at an appropriate altitude

when they are handed off, and that aircraft arrive at a suitable rate for landing. Not all airports

have a radar approach or terminal control available. In this case, the en-route center or a



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neighboring terminal or approach control may co-ordinate directly with the tower on the airport

and vector inbound aircraft to a position from where they can land visually. At some of these

airports, the tower may provide a non-radar procedural approach service to arriving aircraft

handed over from a radar unit before they are visual to land. Some units also have a dedicated

approach unit which can provide the procedural approach service either all the time or for any

periods of radar outage for any reason.

7. En-route, center, or area control

ATC provides services to aircraft in flight between airports as well. Pilots fly under one of two

sets of rules for separation: Visual Flight Rules (VFR) or Instrument Flight Rules (IFR). Air

traffic controllers have different responsibilities to aircraft operating under the different sets of

rules. While IFR flights are under positive control, in the US VFR pilots can request flight

following, which provides traffic advisory services on a time permitting basis and may also

provide assistance in avoiding areas of weather and flight restrictions. En-route air traffic

controllers issue clearances and instructions for airborne aircraft, and pilots are required to

comply with these instructions. En-route controllers also provide air traffic control services to

many smaller airports around the country, including clearance off of the ground and clearance

for approach to an airport. Controllers adhere to a set of separation standards that define the

minimum distance allowed between aircraft. These distances vary depending on the equipment

and procedures used in providing ATC services.

8. General characteristics

En-route air traffic controllers work in facilities called Area Control Centers, each of which is

commonly referred to as a "Center". The United States uses the equivalent term Air Route



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Traffic Control Center (ARTCC). Each center is responsible for many thousands of square miles

of airspace (known as a Flight Information Region) and for the airports within that airspace.

Centers control IFR aircraft from the time they depart an airport or terminal area's airspace to the

time they arrive at another airport or terminal area's airspace. Centers may also "pick up" VFR

aircraft that are already airborne and integrate them into the IFR system. These aircraft must,

however, remain VFR until the Center provides a clearance. Center controllers are responsible

for climbing the aircraft to their requested altitude while, at the same time, ensuring that the

aircraft is properly separated from all other aircraft in the immediate area. Additionally, the

aircraft must be placed in a flow consistent with the aircraft's route of flight. This effort is

complicated by crossing traffic, severe weather, special missions that require large airspace

allocations, and traffic density. When the aircraft approaches its destination, the center is

responsible for meeting altitude restrictions by specific points, as well as providing many

destination airports with a traffic flow, which prohibits all of the arrivals being "bunched

together". These "flow restrictions" often begin in the middle of the route, as controllers will

position aircraft landing in the same destination so that when the aircraft are close to their

destination they are sequenced. As an aircraft reaches the boundary of a Center's control area it is

"handed off" or "handed over" to the next Area Control Center. In some cases this "hand-off"

process involves a transfer of identification and details between controllers so that air traffic

control services can be provided in a seamless manner; in other cases local agreements may

allow "silent handovers" such that the receiving center does not require any co-ordination if

traffic is presented in an agreed manner. After the hand-off, the aircraft is given a frequency

change and begins talking to the next controller. This process continues until the aircraft is

handed off to a terminal controller ("approach").

9. Radar coverage

Since centers control a large airspace area, they will typically use long range radar that has the

capability, at higher altitudes, to see aircraft within 200 nautical miles (370 km) of the radar

antenna. They may also use TRACON radar data to control when it provides a better "picture" of

the traffic or when it can fill in a portion of the area not covered by the long range radar. In the

U.S. system, at higher altitudes, over 90% of the U.S. airspace is covered by radar and often by



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multiple radar systems; however, coverage may be inconsistent at lower altitudes used by

unpressurized aircraft due to high terrain or distance from radar facilities. A center may require

numerous radar systems to cover the airspace assigned to them, and may also rely on pilot

position reports from aircraft flying below the floor of radar coverage. This results in a large

amount of data being available to the controller. To address this, automation systems have been

designed that consolidate the radar data for the controller. This consolidation includes

eliminating duplicate radar returns, ensuring the best radar for each geographical area is

providing the data, and displaying the data in an effective format. Centers also exercise control

over traffic travelling over the world's ocean areas. These areas are also FIRs. Because there are

no radar systems available for oceanic control, oceanic controllers provide ATC services using

procedural control. These procedures use aircraft position reports, time, altitude, distance, and

speed to ensure separation. Controllers record information on flight progress strips and in

specially developed oceanic computer systems as aircraft report positions. This process requires

that aircraft be separated by greater distances, which reduces the overall capacity for any given

route. Some Air Navigation Service Providers (e.g. Air services Australia, The Federal Aviation

Administration, NAVCANADA, etc.) have implemented Automatic Dependent Surveillance -

Broadcast (ADS-B) as part of their surveillance capability. This new technology reverses the

radar concept. Instead of radar "finding" a target by interrogating the transponder. The ADS-

equipped aircraft sends a position report as determined by the navigation equipment on board the

aircraft. Normally, ADS operates in the "contract" mode where the aircraft reports a position,

automatically or initiated by the pilot, based on a predetermined time interval. It is also possible

for controllers to request more frequent reports to more quickly establish aircraft position for

specific reasons. However, since the cost for each report is charged by the ADS service providers

to the company operating the aircraft, more frequent reports are not commonly requested except

in emergency situations.. ADS is significant because it can be used where it is not possible to

locate the infrastructure for a radar system (e.g. over water). Computerized radar displays are

now being designed to accept ADS inputs as part of the display. This technology is currently

used in portions of the North Atlantic and the Pacific by a variety of States who share

responsibility for the control of this airspace.



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10. Flight traffic mapping

The mapping of flights in real-time is based on the air traffic control system. In 1991, data on the

location of aircraft was made available by the Federal Aviation Administration to the airline

industry. The National Business Aviation Association (NBAA), the General Aviation

Manufacturers Association, the Aircraft Owners & Pilots Association, the Helicopter Association

International, and the National Air Transportation Association petitioned the FAA to make ASDI

information available on a "need-to-know" basis. Subsequently, NBAA advocated the broad-

scale dissemination of air traffic data. The Aircraft Situational Display to Industry (ASDI)

system now conveys up-to-date flight information to the airline industry and the public. Three

companies distribute ASDI information, FlightExplorer, FlightView, and FlyteComm. Each

company maintains a website that provides free updated information to the public on flight

status. Stand-alone programs are also available for displaying the geographic location of airborne

IFR (Instrument Flight Rules) air traffic anywhere in the FAA air traffic system. Positions are

reported for both commercial and general aviation traffic. The programs can overlay air traffic

with a wide selection of maps such as, geo-political boundaries, air traffic control center

boundaries, high altitude jet routes, satellite cloud and radar imagery.

11. Problems

11.1. Traffic

The day-to-day problems faced by the air traffic control system are primarily related to the

volume of air traffic demand placed on the system, and weather. Several factors dictate the

amount of traffic that can land at an airport in a given amount of time. Each landing aircraft

must touch down, slow, and exit the runway before the next crosses the end of the runway.

This process requires at least one and up to four minutes for each aircraft. Allowing for

departures between arrivals, each runway can thus handle about 30 arrivals per hour. A large

airport with two arrival runways can handle about 60 arrivals per hour in good weather.



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Problems begin when airlines schedule more arrivals into an airport than can be physically

handled, or when delays elsewhere cause groups of aircraft that would otherwise be separated

in time to arrive simultaneously. Aircraft must then be delayed in the air by holding over

specified locations until they may be safely sequenced to the runway. Up until the 1990s,

holding, which has significant environmental and cost implications, was a routine occurrence

at many airports. Advances in computers now allow the sequencing of planes hours in

advance. Thus, planes may be delayed before they even take off (by being given a "slot"), or

may reduce power in flight and proceed more slowly thus significantly reducing the amount

of holding.

11.2. Weather

Beyond runway capacity issues, weather is a major factor in traffic capacity. Rain or ice and

snow on the runway cause landing aircraft to take longer to slow and exit, thus reducing the

safe arrival rate and requiring more space between landing aircraft. Fog also requires a

decrease in the landing rate. These, in turn, increase airborne delay for holding aircraft. If

more aircraft are scheduled than can be safely and efficiently held in the air, a ground delay

program may be established, delaying aircraft on the ground before departure due to

conditions at the arrival airport. In Area Control Centers, a major weather problem is

thunderstorms, which present a variety of hazards to aircraft. Aircraft will deviate around

storms, reducing the capacity of the en-route system by requiring more space per aircraft, or

causing congestion as many aircraft try to move through a single hole in a line of

thunderstorms. Occasionally weather considerations cause delays to aircraft prior to their

departure as routes are closed by thunderstorms. Much money has been spent on creating

software to streamline this process. However, at some ACCs, air traffic controllers still

record data for each flight on strips of paper and personally coordinate their paths. In newer

sites, these flight progress strips have been replaced by electronic data presented on computer

screens. As new equipment is brought in, more and more sites are upgrading away from

paper flight strips.



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12. Call signs

A prerequisite to safe air traffic separation is the assignment and use of distinctive call signs.

These are permanently allocated by ICAO (pronounced "eye-kay-oh") on request usually to

scheduled flights and some air forces for military flights. They are written callsigns with 3-letter

combination like KLM, AAL, SWA, BAW, DLH followed by the flight number, like AAL872,

BAW018. As such they appear on flight plans and ATC radar labels. There are also the audio or

Radio-telephony callsigns used on the radio contact between pilots and Air Traffic Control not

always identical with the written ones. For example BAW stands for British Airways but on the

radio you will only hear the word Speedbird instead. By default, the callsign for any other flight

is the registration number (tail number) of the aircraft, such as "N12345" or "C-GABC". The

term tail number is because a registration number is usually painted somewhere on the tail of a

plane, yet this is not a rule. Registration numbers may appear on the engines, anywhere on the

fuselage, and often on the wings. The short Radio-telephony callsigns for these tail numbers is

the first letter followed by the last two, like C-BC spoken as Charlie-Bravo-Charlie for C-GABC

or the last 3 letters only like ABC spoken Alpha-Bravo-Charlie for C-GABC or the last 3

numbers like 345 spoken as tree-fower-fife for N12345. In the United States the abbreviation of

callsigns is required to be a prefix (such as aircraft type, aircraft manufacturer, or first letter of

registration) followed by the last three characters of the callsign. This abbreviation is only

allowed after communications has been established in each sector. The flight number part is

decided by the aircraft operator.

In this arrangement, an identical call sign might well be used for the same scheduled journey

each day it is operated, even if the departure time varies a little across different days of the week.

The call sign of the return flight often differs only by the final digit from the outbound flight.

Generally, airline flight numbers are even if eastbound, and odd if westbound. In order to reduce

the possibility of two callsigns on one frequency at any time sounding too similar, a number of

airlines, particularly in Europe, have started using alphanumeric callsigns that are not based on

flight numbers. For example DLH23LG, spoken as Lufthansa-two-tree-lima-golf. Additionally it

is the right of the air traffic controller to change the 'audio' callsign for the period the flight is in

his sector if there is a risk of confusion, usually choosing the tail number instead. Before around



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1980 IATA and ICAO were using the same 2-letter callsigns. Due to the larger number of new

airlines after deregulation ICAO established the 3-letter callsigns as mentioned above. The IATA

callsigns are currently used in aerodromes on the announcement tables but never used any longer

in Air Traffic Control. For example, AA is the IATA callsign for the ICAO ATC equivalent

AAL. Other examples include LY/ELY for El Al, DL/DAL for Delta Air Lines and LH/DLH for

Lufthansa etc.

13. Technology

Many technologies are used in air traffic control systems. Primary and secondary radar are used

to enhance a controller's "situational awareness" within his assigned airspace all types of aircraft

send back primary echoes of varying sizes to controllers' screens as radar energy is bounced off

their skins, and transponder-equipped aircraft reply to secondary radar interrogations by giving

an ID (Mode A), an altitude (Mode C) and/or a unique callsign (Mode S). Certain types of

weather may also register on the radar screen. These inputs, added to data from other radars, are

correlated to build the air situation. Some basic processing occurs on the radar tracks, such as

calculating ground speed and magnetic headings. Other correlations with electronic flight plans

are also available to controllers on modern operational display systems.

Some tools are available in different domains to help the controller further:

Conflict Alert (CA): a tool that checks possible conflicting trajectories and alerts the

controller. The most common used is the STCA (Short Term CA) that is activated about 2

minutes (or even less in approach context - 35 seconds in the French Roissy & Orly approach

centers - to not raise wrong alerts) prior the loss of separation . The algorithms used may also

provide in some systems a possible vectoring solution, that is, the manner in which to turn,

descend, or climb the aircraft in order to avoid infringing the minimum safety distance or altitude

clearance.

Minimum Safe Altitude Warning (MSAW): a tool that alerts the controller if an aircraft

appears to be flying too low to the ground or will impact terrain based on its current altitude and

heading.



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System Coordination (SYSCO) to enable controller to negotiate the release of flights

from one sector to another.

Area Penetration Warning (APW) to inform a controller that a flight will penetrate a

restricted area.

Arrival and Departure manager to help sequence the takeoff and landing of aircraft.

Converging Runway Display Aid (CRDA) enables Approach controllers to run two final

approaches that intersect and make sure that go around are minimized

Center TRACON Automation System (CTAS) is a suite of human centered decision

support tools developed by NASA Ames Research Center. Several of the CTAS tools have been

field tested and transitioned to the FAA for operational evaluation and use. Some of the CTAS

tools are: Traffic Management Advisor (TMA), passive Final Approach Spacing Tool (pFAST),

Collaborative Arrival Planning (CAP), Direct-To (D2), En Route Descent Advisor (EDA) and

Multi Center TMA.

Traffic Management Advisor (TMA), a CTAS tool, is an en route decision support tool

that automates time based metering solutions to provide an upper limit of aircraft to a TRACON

from the Center over a set period of time. Schedules are determined that will not exceed the

specified arrival rate and controllers use the scheduled times to provide the appropriate delay to

arrivals while in the en route domain. This results in an overall reduction in en route delays and

also moves the delays to more efficient airspace (higher altitudes) than occur if holding near the

TRACON boundary is required to not overload the TRACON controllers. TMA is operational at

most en route air route traffic control centers (ARTCCs) and continues to be enhanced to address

more complex traffic situations (e.g. Adjacent Center Metering (ACM) and En Route Departure

Capability (EDC))

passive Final Approach Spacing Tool (pFAST), a CTAS tool, provides runway

assignment and sequence number advisories to terminal controllers to improve the arrival rate at

congested airports. pFAST was deployed and operational at five US TRACONs before being

cancelled. NASA research included an Active FAST capability that also provided vector and

speed advisories to implement the runway and sequence advisories.

MTCD & URET



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o In the US, User Request Evaluation Tool (URET) takes paper strips out of the

equation for En Route controllers at ARTCCs by providing a display that shows all aircraft that

are either in or currently routed into the sector.

o In Europe, Eurocontrol launched a Medium Term Conflict Detection (MTCD)

Programme for use by ECAC States. Today several MTCD tools are available: iFACTS (NATS),

ERATO (DSNA), VAFORIT (DFS). The SESAR Programme should soon launch new MTCD

concepts.

URET and MTCD provide conflict advisories up to 30 minutes in advance and have a

suite of assistance tools that assist in evaluating resolution options and pilot requests.

Mode S: provides a data downlink of flight parameters via Secondary Surveillance

Radars allowing radar processing systems and therefore controllers to see various data on a

flight, including airframe unique id (24-bits encoded), indicated airspeed and flight director

selected level, amongst others.

CPDLC: Controller Pilot Data Link Communications allows digital messages to be sent

between controllers and pilots, avoiding the need to use radiotelephony. It is especially useful in

areas where difficult-to-use HF radiotelephony was previously used for communication with

aircraft, e.g. oceans. This is currently in use in various parts of the world including the Atlantic

and Pacific oceans.

ADS-B: Automatic Dependent Surveillance Broadcast provides a data downlink of

various flight parameters to air traffic control systems via the Transponder (1090 MHz) and

reception of those data by other aircraft in the vicinity. The most important is the aircraft's

latitude, longitude and level: such data can be utilized to create a radar-like display of aircraft for

controllers and thus allows a form of pseudo-radar control to be done in areas where the

installation of radar is either prohibitive on the grounds of low traffic levels, or technically not

feasible (e.g. oceans). This is currently in use in Australia and parts of the Pacific Ocean and

Alaska.

The Electronic Flight Strip system (e-strip): A system of electronic flight strips replacing

the old paper strips developed by NAV CANADA, Frequentis, Avibit, SAAB etc. E-strips

allows controllers to manage electronic flight data online using touch-sensitive display screens

resulting in system feed of clearances, fewer manual functions and a greater focus on safety. The



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NAV CANADA system has been sold to the Air Navigation Services Providers in the United

Kingdom and Denmark.

The Departure Manager (DMAN): A system aid for the ATC at airports, that calculates a

planned departure flow with the goal to maintain an optimal throughput at the runway, reduce

queuing at holding point and distribute the information to various stakeholders at the airport (i.e.

the airline, ground handling and Air Traffic Control (ATC)). The tool is developed to give

substantial environmental and safety benefits in peak hour operation.

14. Major accidents

Failures in the system have caused delays; in some cases failures cause crashes. The most recent

crash happened on September 29, 2006 near Alta Floresta, over the Amazon in Brazil, when Gol

Transportes Areos Flight 1907 hit a private Embraer Legacy jet, which belonged to the American

company ExcelAire and was being flown by two American pilots going at the opposite direction.

On July 1, 2002 a Tupolev Tu-154 and Boeing 757 collided above berlingen near the boundary

between German and Swiss-controlled airspace when a Skyguide-employed controller, unaware

that the flight was receiving instruction from the on-board automatic Traffic Collision Avoidance

System software to climb, instructed the southbound Tupolev to descend. While the northbound

Boeing followed their TCAS prompt to descend, the Tupolev followed the controller's

instruction. The result was a mid-air collision in which all passengers and crew on both flights

died. Skyguide company publicity had previously acknowledged that the relatively small size of

Swiss airspace makes real-time cross-boundary liaison with adjoining authorities particularly

important. Mid-Air Collision for more on this accident. As of 2007 air traffic controllers have no

way of knowing if or when the TCAS system is issuing resolution advisories to pilots. They also

do not know what the advisory is telling the pilots. Therefore, pilots are supposed to immediately

follow TCAS resolution advisories and report them as soon as possible. Consequently, they

should ignore ATC instructions until they have reported to the ground that they are clear of the

conflict. The deadliest mid-air crash, the 1996 Charkhi Dadri mid-air collision over India, partly

resulted from the fact that the New Delhi-area airspace was shared by departures and arrivals,

when in most cases departures and arrivals would use separate airspaces. Other fatal collisions

between airliners have occurred over Namibia and former Yugoslavia. When a risk of collision is



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identified by aircrew or ground controllers an "air miss" or "air prox" (air proximity) report can

be filed with the air traffic control authority concerned. The deadliest collision between airliners

took place on the ground, on March 27, 1977, in what is known as the Tenerife disaster. The

FAA has spent over USD$3 billion on software, but a fully-automated system is still over the

horizon. In 2002 the UK brought a new area control centre into service at Swanwick, in

Hampshire, relieving a busy suburban centre at West Drayton in Middlesex, north of London

Heathrow Airport. Software from Lockheed-Martin predominates at Swanwick.

The Swanwick facility, however, was initially been troubled by software and communications

problems causing delays and occasional shutdowns. Air navigation service providers (ANSPs)

and traffic service providers (ATSPs) An Air Navigation Service Provider The air navigation

service provider is the authority directly responsible for providing both visual and non-visual

aids to navigation within a specific airspace in compliance with, but not limited to, International

Civil Aviation Organization (ICAO) Annexes 2, 6, 10 and 11; ICAO Documents 4444 and 9426;

and, other international, multi-national, and national policy, agreements or regulations. An Air

Traffic Service Provider is the relevant authority designated by the State responsible for

providing air traffic services in the airspace concerned where airspace is classified as Type A

through G airspace. Air traffic service is a generic term meaning variously, flight information

service, alerting service, air traffic advisory service, air traffic control service (area control

service, approach control service or aerodrome control service). Both ANSPs and ATSPs can be

public, private or corporatized organizations and examples of the different legal models exist

throughout the world today. The world's ANSPs are united in and represented by the Civil Air

Navigation Services Organization based at Amsterdam Airport Schiphol in the Netherlands. The

regulatory function remains the responsibility of the State and can be exercised by Government

and/or independent Safety, Airspace and Economic Regulators depending on the national

institutional arrangements. In the United States, the Federal Aviation Administration (FAA)

provides this service to all aircraft in the National Airspace System (NAS). With the exception of

facilities operated by the Department of Defense (DoD), the FAA is responsible for all aspects of

U.S. Air Traffic Control including hiring and training controllers, although there are contract

towers located in many parts of the country. DoD facilities are generally staffed by military



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personnel and operate separately but concurrently with FAA facilities, under similar rules and

procedures. A contract tower is an Airport Traffic Control Tower (ATCT) that performs the

same function as an FAA-run ATCT but is staffed by employees of a private company (Martin

State Airport in Maryland is an example). In Canada, Air Traffic Control is provided by NAV

CANADA, a private, non-share Capital Corporation that operates Canada's civil air navigation

service.

In Section 3 of this course you will cover these topics:Scheduling Through Hubs

Pricing Power


semester end date.



Topic Objective:


Air Traffic Flow Management

Reason for use

Operation

Slot & Calculated Take-Off Time



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Scheduling is the process of deciding how to commit resources between varieties of possible

tasks. Time can be specified (scheduling a flight to leave at 8:00) or floating as part of a

sequence of events.

Scheduling may refer to:

I/O scheduling, the order in which I/O requests are submitted to a block device in

Computer Operating Systems

Scheduling (broadcasting), the minute planning of the content of a radio or television

broadcast channel

Scheduling algorithm

Scheduling (computing), the way various processes are assigned in multitasking and

multiprocessing operating system design

Scheduling (production processes), the planning of the production or the operation

Schedule (workplace), ensuring that an organization has sufficient staffing levels at all

times

Project Scheduling, which builds on prior project planning, and includes the design,

development, maintenance, and usage of a project schedule.

Job scheduler, an enterprise software application in charge of unattended background

executions.

Job Shop Scheduling, an optimization problem in computer science.

Key Points:

1. Air Traffic Flow Management

Air Traffic Flow Management is the regulation of air traffic in order to avoid exceeding airport

or air traffic control capacity in handling traffic, and to ensure that available capacity is used

efficiently.



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2. Reason for use

Because only one aircraft can land or depart from a runway at the same time, and because

aircraft must be separated by certain time to avoid collisions, every airport has a finite capacity;

it can only safely handle so many aircraft per hour. This capacity depends on many factors, such

as the number of runways available, layout of taxi tracks, availability of air traffic control, but

also on current or anticipated weather. Especially the weather can cause large variations in

capacity because strong winds may limit the number of runways available, and poor visibility

may necessitate increases in separation between aircraft. Air traffic control can also be limiting,

there are only so many aircraft an air traffic control unit can safely handle. Staff shortages, radar

maintenance or equipment faults can lower the capacity of a unit. This can affect both airport air

traffic control as well as en-route air traffic control centers. When an air traffic control unit that

will control a flight reaches capacity, arriving aircraft are direct towards holding patterns where

they circle until it is their turn to land. Because aircraft flying in circles is an inefficient and

costly way of delaying aircraft, it is preferable to keep them on the ground at their place of

departure, called a ground delay program. This way, the delay can be waited out on the ground

with engines off, saving considerable amounts of fuel (a large jet aircraft can use dozens of

gallons of fuel per minute in the air). Obviously, careful calculation of enroute time for each

flight (and the effect of current wind upon it) and traffic flow as a whole is needed, which is

highly dependent on computers.

3. Operation

All IFR flight plans are tracked by a CFMU (Central Flow Management Unit). Each airport and

air traffic control sector has a published maximum capacity. When capacity is exceeded,

measures are taken to reduce the traffic. This is termed regulation. The aim is to utilize capacity

effectively, keeping the average delay as low as possible, while ensuring capacity is not

exceeded. As a (highly simplified) example, if two flights are scheduled to arrive at an airport at

exactly the same time, and the airport can handle one aircraft every 5 minutes, the aircraft may

be assigned delays to ensure that the second aircraft arrives 5 minutes after the first. Similarly,



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the first aircraft will be required to depart on schedule and not allowed to depart late. This way,

the second aircraft will not need to wait in the air. In practice, the process is much more complex

and highly computerized. One aircraft may be subject to several regulations at the same time. For

example, a flight from Amsterdam to Paris may be regulated both by limited capacity at Paris as

well as by limited capacity in Belgian airspace. In some cases, it may be possible to avoid delay

by taking a different route. For instance, if Belgian airspace was the only regulation for the flight

in the previous example, changing the route to avoid Belgium and going via Germany instead

might allow a flight to depart without delay, although the route might be a bit longer. In many

cases, airlines authorize the CFMU to make changes in a flight's route to avoid delay. Certain

flights are exempt from regulation, for instance time-critical flights carrying human organs for

organ transplantation. If such flights are scheduled, regular traffic will be delayed instead. If an

airport is completely closed unexpectedly (for instance, because the only runway is blocked), a

zero rate may be set for a certain time period (e.g. until the runway is expected to be reopened),

which will cause all inbound flights to be issued a delay that will cause them to arrive after the

reopening time. Flights already en route would either enter the holding or divert to an alternate

airport.

4. Slot & Calculated Take-Off Time

The CFMU issues delays by means of a CTOT (Calculated Take-Off Time), also known as slot

time or simply slot. The slot is actually a period of time within which take-off has to take place -

in Europe (Eurocontrol) it is defined between -5 and + 10 minutes from CTOT. The aircraft is

required to be at the runway, ready for departure at its CTOT, the leeway is for air traffic control

to integrate the aircraft into the other traffic. If a slot is missed (or if it is already certain in

advance that it will be missed), CFMU assigns a new one. A different aircraft which has a slot

because of the same regulation may be issued an improvement on its slot to make use of the

newly available capacity. The slot and any revisions are communicated to the aircraft operator as

well as the air traffic control unit at the departure airport via a special network called AFTN. It is

perhaps surprising to some, that a delay in Istanbul may be incurred because inclement weather

is expected at the destination in London, 3 hours later, even though the weather in Istanbul is

good and there is no congestion. Blaming a delay on the departure airport or the airline is often



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not correct. Capacity limitations of the airspace between the two aerodromes, in the en-route

segment, can also be a reason for delays.

Topic Objective:


Ticket revenue

Operating costs

Assets and financing


An economic term referring to the effect that a change in a firm's product price has on the

quantity demanded of that product. Pricing power ties in with the Price Elasticity of Demand.

According to investopedia Generally speaking, if a company doesn't have much pricing power

then an increase in their prices would lessen the demand for their products.

Key Points:

1. Ticket revenue

Airlines assign prices to their services in an attempt to maximize profitability. The pricing of

airline tickets has become increasingly complicated over the years and is now largely determined

by computerized yield management systems. Because of the complications in scheduling flights

and maintaining profitability, airlines have many loopholes that can be used by the

knowledgeable traveler. Many of these airfare secrets are becoming more and more known to the

general public, so airlines are forced to make constant adjustments. Most airlines use

differentiated pricing, a form of price discrimination, in order to sell air services at varying prices



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simultaneously to different segments. Factors influencing the price include the days remaining

until departure, the booked load factor, the forecast of total demand by price point, competitive

pricing in force, and variations by day of week of departure and by time of day. Carriers often

accomplish this by dividing each cabin of the aircraft (first, business and economy) into a

number of travel classes for pricing purposes. A complicating factor is that of origin-destination

control ("O&D control"). Someone purchasing a ticket from Melbourne to Sydney (as an

example) for AU$200 is competing with someone else who wants to fly Melbourne to Los

Angeles through Sydney on the same flight, and who is willing to pay AU$1400. Should the

airline prefer the $1400 passenger, or the $200 passenger plus a possible Sydney-Los Angeles

passenger willing to pay $1300? Airlines have to make hundreds of thousands of similar pricing

decisions daily. The advent of advanced computerized reservations systems in the late 1970s,

most notably Sabre, allowed airlines to easily perform cost-benefit analyses on different pricing

structures, leading to almost perfect price discrimination in some cases (that is, filling each seat

on an aircraft at the highest price that can be charged without driving the consumer elsewhere).

The intense nature of airfare pricing has led to the term "fare war" to describe efforts by airlines

to undercut other airlines on competitive routes. Through computers, new airfares can be

published quickly and efficiently to the airlines' sales channels. For this purpose the airlines use

the Airline Tariff Publishing Company (ATPCO), who distributes latest fares for more than 500

airlines to Computer Reservation Systems across the world. The extent of these pricing

phenomena is strongest in "legacy" carriers. In contrast, low fare carriers usually offer

preannounced and simplified price structure, and sometimes quote prices for each leg of a trip

separately. Computers also allow airlines to predict, with some accuracy, how many passengers

will actually fly after making a reservation to fly. This allows airlines to overbook their flights

enough to fill the aircraft while accounting for "no-shows," but not enough (in most cases) to

force paying passengers off the aircraft for lack of seats. Since an average of ⅓ of all seats are

flown empty simulative pricing for low demand flights coupled with overbooking on high

demand flights can help reduce this figure.



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2. Operating costs

Full-service airlines have a high level of fixed and operating costs in order to establish and

maintain air services: labor, fuel, airplanes, engines, spares and parts, IT services and networks,

airport equipment, airport handling services, sales distribution, catering, training, aviation

insurance and other costs. Thus all but a small percentage of the income from ticket sales is paid

out to a wide variety of external providers or internal cost centers. Moreover, the industry is

structured so that airlines often act as tax collectors. Airline fuel is untaxed, however, due to a

series of treaties existing between countries. Ticket prices include a number of fees, taxes, and

surcharges they have little or no control over, and these are passed through to various providers.

Airlines are also responsible for enforcing government regulations. If airlines carry passengers

without proper documentation on an international flight, they are responsible for returning them

back to the originating country. Analysis of the 1992-1996 period shows that every player in the

air transport chain is far more profitable than the airlines, which collect and pass through fees

and revenues to them from ticket sales. While airlines as a whole earned 6% return on capital

employed (2-3.5% less than the cost of capital), airports earned 10%, catering companies 10-

13%, handling companies 11-14%, aircraft lessors 15%, aircraft manufacturers 16%, and global

distribution companies more than 30%. In contrast, Southwest Airlines has been the most

profitable of airline companies since 1970.

The widespread entrance of a new breed of low cost airlines beginning at the turn of the century

has accelerated the demand that full service carriers control costs. Many of these low cost

companies emulate Southwest Airlines in various respects, and like Southwest, they are able to

eke out a consistent profit throughout all phases of the business cycle.

As a result, a shakeout of airlines is occurring in the U.S. and elsewhere. United Airlines, US

Airways (twice), Delta Air Lines, and Northwest Airlines have all declared Chapter 11

bankruptcy. Some argue that it would be far better for the industry as a whole if a wave of actual

closures were to reduce the number of "undead" airlines competing with healthy airlines while

being artificially protected from creditors via bankruptcy law. On the other hand, some have

pointed out that the reduction in capacity would be short lived given that there would be large



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quantities of relatively new aircraft that bankruptcies would want to get rid of and would re-enter

the market either as increased fleets for the survivors or the basis of cheap planes for new

startups. Where an airline has established an engineering base at an airport then there may be

considerable economic advantages in using that same airport as a preferred focus (or "hub") for

its scheduled flights.

3. Assets and financing

Airline financing is quite complex, since airlines are highly leveraged operations. Not only must

they purchase (or lease) new airliner bodies and engines regularly, they must make major long-

term fleet decisions with the goal of meeting the demands of their markets while producing a

fleet that is relatively economical to operate and maintain. Compare Southwest Airlines and their

reliance on a single airplane type (the Boeing 737 and derivatives), with the now defunct Eastern

Air Lines which operated 17 different aircraft types, each with varying pilot, engine,

maintenance, and support needs. A second financial issue is that of hedging oil and fuel

purchases, which are usually second only to labor in its relative cost to the company. However,

with the current high fuel prices it has become the largest cost to an airline. While hedging

instruments can be expensive, they can easily pay for themselves many times over in periods of

increasing fuel costs, such as in the 2000-2005 periods. In view of the congestion apparent at

many international airports, the ownership of slots at certain airports (the right to take-off or land

an aircraft at a particular time of day or night) has become a significant tradable asset for many

airlines. Clearly take-off slots at popular times of the day can be critical in attracting the more

profitable business traveler to a given airline's flight and in establishing a competitive advantage

against a competing airline. If a particular city has two or more airports, market forces will tend

to attract the less profitable routes, or those on which competition is weakest, to the less

congested airport, where slots are likely to be more available and therefore cheaper. Other

factors, such as surface transport facilities and onward connections, will also affect the relative

appeal of different airports and some long distance flights may need to operate from the one with

the longest runway.



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In Section 4 of this course you will cover these topics:Mergers And Alliances


semester end date.



Topic Objective:


Code Sharing

Competitive concerns

Rail & Fly

Airline partnerships


An alliance is an agreement between two or more parties, made in order to advance common

goals and to secure common interests. The Anglo-Portuguese Alliance, between the Kingdom of

England (succeeded by the United Kingdom) and Portugal, is the oldest alliance in the world

which is still in force. It was signed in 1373. The phrase mergers and acquisitions (abbreviated

M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with

the buying, selling and combining of different companies that can aid, finance, or help a growing

company in a given industry grow rapidly without having to create another business entity.



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Key Points:

1. Code Sharing

Code sharing is a business term which was first originated in the airline industry in 1990 when

the Australian airline, Qantas Airways and the US's American Airlines combined services

between an array of US domestic cities and Australian cities. The code share was part of a

"cooperative services" agreement between the two carriers before the various airline alliances

were formed. It refers to a practice where a flight operated by an airline is jointly marketed as a

flight for one or more other airlines. Most major airlines today have code sharing partnerships

with other airlines, and code sharing is a key feature of the major airline alliances. Year 1990

(MCMXC) was a common year starting on Monday (link displays the 1990 Gregorian calendar).

... Qantas is Australians oldest and largest airline and the worlds second oldest airline (after

KLM). ... United States may refer to: Places: United States of America SS United States, the

fastest ocean liner ever built. ...

The term "code" refers to the identifier used in flight schedule, generally the 2-character IATA

airline designator code and flight number. Thus, XX123, flight 123 operated by the airline XX,

might also be sold by airline YY as YY456 and by ZZ as ZZ9876.

Under a code sharing agreement participating airlines can present a common flight number for

several reasons, including:

Connecting flights - This provides clearer routing for the customer, allowing a customer

to book travel from point A to B through point C under one carrier's code, instead of a customer

booking from point A to C under one code, and from point C to B under another code. This is not

only a superficial addition as cooperating airlines also strive to synchronize their schedules and

coordinate luggage handling, which makes transfers between connecting flights less time-

consuming.

Flights from both airlines that fly the same route - This provides an apparent increase in

the frequency of service on the route by one airline

Perceived service to unserved markets - This provides a method for carriers who do not

operate their own aircraft on a given route to gain exposure in the market through display of their

flight numbers.



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Under a code sharing agreement, the airline that actually operates the flight (the one providing

the plane, the crew and the ground handling services) is called the operating carrier. The

company or companies that sell tickets for that flight but do not actually operate it are called

marketing carriers.

2. Competitive concerns

In Global Distribution Systems, such as Amadeus, Galileo, Worldspan, or Sabre, this result in

the same flight details, except for the flight number, being excessively displayed on computer

screens, forcing other airlines flights to be displayed on following pages where they may be

missed by passengers searching for required flights. Much competition in the airline industry

revolves around ticket sales (also known as "seat booking") strategies (revenue management,

variable pricing and Geo-marketing). Most travelers and travel agents have a preference for

flights which provide a direct connection. Code sharing gives this impression. Computer

reservations systems (CRS) also often do not discriminate between direct flights and code

sharing flights and present both before options that involve several isolate stretches run by

different companies.

Criticism has been leveled against code sharing by consumer organizations and national

departments of trade since it is claimed it is confusing and not transparent to passengers.

3. Rail & Fly

There are also code sharing agreements between airlines and rail lines also known as Rail & Fly

systems. They involve some integration of both types of transport, e.g., in finding out the fastest

connection, allowing exchange between an air ticket and a train ticket, or a step further, the air

ticket being valid on the train, etc. In Europe these Rail & Fly systems are used to divide markets

by selling these combination tickets abroad for a lower price to attract more customers. The

systems also prevent local customers from buying these much cheaper tickets as the customer is

only allowed to board the plane with a valid train stamp from a station outside the country.



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4. Airline partnerships

Code sharing is the most common type of airline partnership; it involves one airline selling

tickets for another airline's flights under its own airline code. An early example of this was Japan

Airlines' code sharing partnership with Aeroflot in the 1960s on flights from Tokyo to Moscow:

Aeroflot operated the flights using Aeroflot aircraft, but JAL sold tickets for the flights as if they

were JAL flights. This practice allows airlines to expand their operations, at least on paper, into

parts of the world where they cannot afford to establish bases or purchase aircraft. Another

example was the Austrian- Sabena partnership on the Vienna-Brussels-New York JFK route

during the late 60's, using a Sabena Boeing 707 with Austrian colors. Since airline reservation

requests are often made by city-pair (such as "show me flights from Chicago to Dsseldorf"), an

airline who is able to code share with another airline for a variety of routes might be able to be

listed as indeed offering a Chicago-Dsseldorf flight. The passenger is advised however, that

Airline 1 operates the flight from say Chicago to Amsterdam, and Airline 2 operates the

continuing flight (on a different airplane, sometimes from another terminal) to Dsseldorf. Thus

the primary rationale for code sharing is to expand one's service offerings in city-pair terms so as

to increase sales. A more recent development is the airline alliance, which became prevalent in

the 1990s. These alliances can act as virtual mergers to get around government restrictions.

Groups of airlines such as the Star Alliance, Oneworld, and SkyTeam coordinate their passenger

service programs (such as lounges and frequent flyer programs), offer special interline tickets,

and often engage in extensive codesharing (sometimes systemwide). These are increasingly

integrated business combinations-- sometimes including cross-equity arrangements-- in which

products; service standards, schedules, and airport facilities are standardized and combined for

higher efficiency. One of the first airlines to start an alliance with another airline was KLM, who

partnered with Northwest Airlines. Both airlines later entered the SkyTeam alliance after the

fusion of KLM and Air France in 2004. Often the companies combine IT operations, buy fuel, or

purchase airplanes as a bloc in order to achieve higher bargaining power. However, the alliances

have been most successful at purchasing invisible supplies and services, such as fuel. Airlines

usually prefer to purchase items visible to their passengers to differentiate themselves from local

competitors. If an airline's main domestic competitor flies Boeing airliners, then the airline may

prefer to use Airbus aircraft regardless of what the rest of the alliance chooses.



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In Section 5 of this course you will cover these topics:Transnational Airlines


semester end date.



Topic Objective:


Global aviation

Politics

Business

Geography

Surname

Fiction

Other fields


International Airline industry, airline business has grown as companies increasingly are turning

to international in terms of their investments, their supply and production chains and their

customers. As world is being term as global village, the rapid growth of world trade in goods and

services and international direct investment have also added in the expansion of business travel.

One thing that really impressed me about Airline Industry was their ability to maintain high

profits and maintain a high customer base even after the September 11 attacks and 2002



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recession. The international prices have increased due to improved security system whereas local

or national prices are very affordable to customers.

Key Points:

1. Global aviation

Global aviation industry is expected to grow at a CAGR of 5.6% for the period between

2004 -2024

The major conventional matured airline markets like US and Europe will see there

cumulative market share going down from 61% in 2005 to 52% in 2025

Emerging market like China, India, and Middle East poses great opportunity for the civil

aviation sector, especially for regional carriers

However market like India & Middle East are highly regulated markets which bar entry

of foreign players

Regional aviation industry in US is on rise, growing at a CAGR of 3.9% for the period

2001 2005

New models like air taxi, Boutique regional catering to niche travelers are picking up

2. Politics

Alberta Alliance Party, a small right-wing political party in Alberta, Canada that existed

from 2002 until merging to form the Wildrose Alliance Party in 2008 (see below)

Alliance, the former name of the Barisan Nasional in Malaysia

Social Democratic Alliance, political party in Iceland

Alliance (New Zealand political party), left-wing political party in New Zealand politics

Alliance 90, an alliance of 3 opposition groups in East Germany

Alliance for Chile, a political coalition that includes Chiles two rightwing parties RN and

UDI



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Alliance for Sweden, an electoral and governing (since September 2006) political

coalition between the Moderate Party, Centre Party, Liberal People's Party and Christian

Democrats

Alliance for the planet (LAlliance pour la plante)

Alliance Party of Northern Ireland, political party operating in Northern Ireland

Canadian Alliance, Canadian right-of-centre conservative political party that existed from

2000 to 2003

Fijian Alliance, a former political party in Fiji

International Alliance of Socialist Democracy, an organization founded by Mikhail

Bakunin

Melanesian Alliance Party, a political party in Papua New Guinea

People's Alliance for Democracy, a long-term protest movement in Thailand which is

opposed to former Prime Minister Thaksin Shinawatra and his supporters

People's Alliance Party, a political party in the Solomon Islands

ProLife Alliance, a political party in the United Kingdom

SDP-Liberal Alliance, electoral alliance of the Social Democratic Party and the Liberal

Party in the United Kingdom that operated from 1981 to 1988

The Alliance, the predecessor of the Barisan Nasional political coalition in Malaysia.

The Alliance (Hong Kong), political group in Hong Kong

Tongmenghui (or "Revolutionary Alliance"), a Chinese underground resistance

movement which operated in Japan from 1905 to 1912

United Iraqi Alliance, a political coalition in Iraq

United People Alliance, electoral and political coalition between the Portuguese

Communist Party or PCP and the Portuguese Democratic Movement or MDP

National Alliance (disambiguation), several political parties

National Democratic Alliance, several political parties

New Alliance Party (disambiguation), several political parties

North Atlantic Treaty Organization (NATO), a military alliance established by the

signing of the North Atlantic Treaty

Wildrose Alliance Party, a small right-wing political party in Alberta, Canada



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3. Business

Alliance (1904 automobile), an early German automobile

Alliance (1905 automobile), an early French automobile

Alliance Air, a low-cost carrier based in Delhi, India

Alliance Airlines, a charter airline based in Brisbane, Australia

Alliance Atlantis, a Toronto-based media company

Alliance Entertainment, an independent distributor of music, movies, and game software

Alliance Records, a record label

Alliance Semiconductor, an electronic chip maker in Santa Clara, California

Alliance & Leicester, a British bank

AutoAlliance, joint-venture automobile plants of Ford Motor Company and Mazda

Business alliance, an agreement between businesses

4. Geography

United States

1. Alliance, Indiana

2. Alliance, Nebraska

3. Alliance, North Carolina

4. Alliance, Ohio

5. Alliance Township, Minnesota

Other

1. Alliance, Suriname

2. Alliance, Ashok Thakur

5. Surname

David Alliance, Baron Alliance, a British businessman and Liberal Democrat politician

6. Fiction

Alliance of Twelve from the Alias TV series



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Alliance (DC Comics), an organization of alien freedom fighters from the pages of DC

Comics

The Alliance, a military, cultural, and economic alliance between Humans, Night Elves,

Gnomes, Dwarves and Draenei in the MMORPG World of Warcraft.

Anglo-Sino Alliance, powerful government and law-enforcement organization that

controls a large sector of colonized "core planets" in the Firefly television series

Earth Alliance (Babylon 5), fictional alliance of the countries of Earth in the television

series Babylon 5

Earth Alliance (Gundam), a military alliance that controls most of the Earth in the

Japanese anime TV series Gundam Seed

Ferengi Alliance, fictional extraterrestrial race from the Star Trek universe

Rebel Alliance, interstellar political resistance force formed in direct military opposition

to the Galactic Empire in the fictional Star Wars universe

United Alliance of Evil from the Power Rangers TV series

The Alliance of Order (Warhammer), an alliance of Humans, Elves and Dwarves to

counter the Forces of Destruction

7. Other fields

Alliance (Bible), Torah event

Christian and Missionary Alliance, an evangelical Christian denomination

The Alliance (professional wrestling), professional wrestling faction which ostensibly

consisted of World Championship Wrestling and Extreme Championship Wrestling

The Alliance (dancehall), a group of dancehall artists founded by Bounty Killer

The Alliance (The Office episode), an episode of the television series The Office

Alliance to End Hulkamania, professional wrestling stable in World Championship

Wrestling

In taxonomy, a division between subtribe and genus

Military alliance, an agreement between two, or more, countries

The Alliance Theatre Company, based in Atlanta, Georgia

The PC Gaming Alliance, a non-profit organization aimed at promoting PC gaming



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